SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended July 31, 2000
Commission File No. 0-10315
E-COMMERCE WEST CORP.
(exact name of registrant as specified in its charter)
(formerly Royal Casino Group Inc.)
Utah 95-4091368
(State of Incorporation) (I.R.S. Employee I.D.No.)
83 Sherman St.
Deadwood, SD 57732
(605) 578-1299 Fax (605) 578-1298
Address and telephone of principal executive offices
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days:
[x] Yes [ ] No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[x] Yes [ ] No
The aggregate market value of registrant's voting stock held by non-affiliates
as of the close of business on July 31, 2000 was $1,189,038
18,146,225 shares of registrant's $0.001 par value
common stock were outstanding and issued as
of July 31, 2000
Documents incorporated by reference: None
TABLE OF CONTENTS
PART I PAGE
NUMBER
ITEM 1. BUSINESS............................................. 3
ITEM 2. PROPERTIES........................................... 3
ITEM 3. LEGAL PROCEEDINGS.................................... 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . 4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS................ 5
ITEM 6. SELECTED FINANCIAL DATA.............................. 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 8
ITEM 8. FINANCIAL STATEMENTS................................. 14
NOTES TO FINANCIAL STATEMENTS........................ 23
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES ............. 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.................... 39
ITEM 11. EXECUTIVE COMPENSATION.............................. 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..................................... 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................ 44
SUBSEQUENT EVENTS................................... 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K............................. 48
SIGNATURE PAGE .................................................... 49
PART I
Item 1. Business
The Company, a Utah Corporation, was incorporated on March 21, 1981.
Since incorporation the Company has undergone several name, ownership,
directional and management changes. In July, 1998 the Company changed its name
to E-Commerce West Corp. from Royal Casino Group reflecting a shift in its
primary business focus from gaming to e-Commerce.
The Company's current revenues are derived from the activities of N2
Networking, Inc. The Company anticipates additional revenues will be
generated if the Company is successful in developing and bringing to market
its business-to-business internet application. Throughout the recent fiscal
year it did have limited revenues from two business-to-consumer websites which
it owned, operated and subsequently sold.
E-Commerce West Corp. is a publicly traded company whose stock trades on
the NASDAQ Over-The-Counter ("OTC") Bulletin Board under the symbol "ECEE".
The Company maintains its principal office at 83 Sherman St, Deadwood, SD
57732. The Company's mailing address is P.O. Box 624 Deadwood, SD 57732, it's
telephone and fax numbers are (605) 578.1299 and(605) 578.1298 respectively.
Narrative Description of Business
The Company has three wholly-owned subsidiaries: (1) N2 Networking Inc.,
a California corporation offering ISP services, which was acquired through
the execution of a Stock Purchase Agreement in May, 2000; and (2) a separate
corporation formed for the purpose of developing and marketing the Company's
new B2B internet application; and, (3) Royal Casino Group whose primary asset
is a riverboat casino development which is currently for sale.
Westerngold.com Corp. and Atlantic-Pacific Corp., former subsidiaries of
the Company, sold a majority of their assets and subsequently dissolved.
Since August, 1999 the Company has devoted all its resources to the
development of a Business-to-Business Internet application which it plans to
introduce to the market in the first quarter of 2001.
Employees
The Company currently employs four full-time and two part-time employees
including those employed at subsidiary companies. Once the new B2B internet
application is fully funded and operational, it is anticipated the Company
will employ an additional twenty-five to thirty persons.
Item 2. Properties
The Company does not own any real property.
The Company leases approximately 3,600 square feet for its corporate
headquarters in Deadwood, South Dakota for $1,250 per month on a lease through
April, 2000. As the Company is planning to relocate its corporate
headquarters to San Diego, California once suitable funding has been achieved
for its new internet application, the Company chose not to exercise a renewal
option for a second year at $1,500 per month, however it remains in the
facility on a month-to-month basis at $1,250 per month. The property is
suitable for the current needs of the Company.
Item 3. Legal Proceedings
The Company is not involved in any existing law suits, nor is the
Company aware of any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the year there were no submissions of matters to a vote of
security holders.
PART II
Item 5. Market for the Registrant's Common
Stock and Related Security-Holder Matters
(a) Market Information. E-Commerce West's common stock is traded on
the NASDAQ Bulletin Board under the symbol "ECEE".
The following table sets forth the high and low bid prices per share of
the Company's Common Stock for the quarters indicated. These prices represent
inter-dealer prices, without adjustment for retail mark-up, markdown or
commissions, and may not necessarily represent actual transactions.
High Low
2000 Fourth Quarter. . . . . $1.25 $0.22
2000 Third Quarter. . . . . $1.81 $0.14
2000 Second Quarter. . . . . $0.25 $0.06
2000 First Quarter. . . . . $0.21 $0.06
1999 Fourth Quarter. . . . . $0.37 $0.12
1999 Third Quarter. . . . . $1.03 $0.23
1999 Second Quarter. . . . . $0.58 $0.25
1999 First Quarter. . . . . $0.58 $0.14
(b) Holders. The approximate number of holders of record of the
Company's Common Stock as of July 31, 2000 was 2,650
(c) The Company has not paid a cash dividend on its Common Stock and
does not anticipate that it will do so in the foreseeable future.
(d) On January 22, 2000 the Board of Directors passed a motion extending
the exercise date for the Company's Class "B" Warrants to July 26, 2000. On
July 18, 2000 the Board of Directors passed a motion extending the exercise
date for the Company's Class "B" Warrants six months to January 26, 2001, with
all other terms and conditions applicable to the warrants remaining in effect.
Item 6. Selected Financial Data
The selected financial data set forth below should be read in
conjunction with the financial statements and related notes. Balance sheet
information is presented as of the end of the period shown.
The following table summarizes certain audited financial data and is
qualified in its entirety by the more detailed financial statements included
elsewhere herein.
Schedule of Selected Financial Information
for the Year ended July 31,
2000 1999 1998 1997 1996
Net Operating Revenues:
Continuing Operations 59,834 $0 $0 $0 $0
Loss from continuing
Operations ($686,773)($594,159)($691,566)($1,239,785)($282,795)
Loss from continuing
operations per common
share (0.05) ($0.06) ($0.12) ($0.27) ($0.09)
Cash dividends declared
per common share $0 $0 $0 $0 $0
As of July 31,
2000 1999 1998 1997 1996
Total Assets:
Continuing Operations $540,891 $304,185 $205,708 $156,923 $913,420
Current Liabilities:
Continuing Operations $577,641 $509,837 $294,051 $392,703 $158,247
Long-Term Obligations &
Redeemable Preferred
Stock $ 1,100 $ 1,100 $2,440,000 $2,440,000 $2,440,000
July 31, 2000
Total Assets ...............................$ 540,891
Total Liabilities...........................$ 577,641
Shareholders' Deficit.......................$ (36,750)
Shares Outstanding
Common Stock ................................ 18,146,225
Series A Convertible Preferred Stock ........ 1,100,000
(1) There are presently outstanding 1,611,846 "B" Warrants which
entitle the holder to purchase one share of Common Stock at a purchase price
of $20 until January 26, 2001. There are presently outstanding 550,000 "C"
Warrants which entitle the holder to purchase one share of Common Stock at a
purchase price of $4 until December 31, 2000. This calculation assumes that
none of the aforementioned "B" and "C" Warrants have been exercised.
Income Taxes:
The Company does not owe any Federal or State Income Taxes, and has a net
operating loss carryforward of approximately $6,025,815 expiring in the
beginning of 2010. During the year the Company paid $72,845.15 in total
satisfaction of an Offer in Compromise pertaining to Atlantic-Pacific Corp., a
former wholly-owned subsidiary which was dissolved during the year.
Shareholders' Equity
Common Stock:
The Company has 150,000,000 shares authorized, 18,146,225 shares issued
and outstanding. There are presently outstanding 1,611,846 "B" Warrants which
entitle the holder to purchase one share of Common Stock at a purchase price
of $20 until January 26, 2001. The "B" Warrants are callable by the Company
at a purchase price of $0.20 per Warrant. Additionally, the Company has
550,000 "C" Warrants outstanding which entitle the holder to purchase one
share of Common Stock at a purchase price of $4. until December, 2000. These
Warrants are callable by the Company at a purchase price of $1 per Warrant.
Preferred Stock:
The Company has 100,000,000 shares authorized of which 1,100,000 Class A
Preferred are issued and outstanding. The outstanding preferred stock was
convertible by the holders into common shares on a one-for-one basis,
beginning in 1997. However, the conversion rights to the preferred stock
expired three years from the date of issuance and now can only be redeemed
upon dissolution of the Company. Pinnacle Entertainment, Inc. a gaming
company which acquired ownership of 1,000,000 preferred shares via their
acquisition of Casino Magic Corp. and KP Investments, owners of 100,000
preferred shares, failed to timely exercise their right to convert prior to
the expiration date.
Shareholders' Equity
Stock Options:
Under the terms of its 1989 nonqualified employee stock option plan (the
"Stock Option Plan") the Company is authorized to issue options for the
purchase of up to 250,000 shares of Common Stock pursuant to a resolution of
the Board of Directors and by Amendment of its Certificate of Incorporation
and/or Bylaws. Pursuant to the Stock Option Plan, the Company previously
issued 170,000 options to Jon Elliott, the Company's President & CEO. The
options may be exercised at a purchase price of $1.25 per share and expire on
December 31, 2003.
In 1999, the Company authorized options, with an expiration date of
December 31, 2003, for the purchase of up to three million shares of common
stock to an Employee Stock Option Plan. The Board granted 900,000 options to
Jon Elliott, the Company's President and CEO. These options carry an exercise
price of $0.60 per share and expire on December 13, 2003. Additionally, the
Board on the same date authorized the establishment of 500,000 options, each
to be exchanged on a one for one common stock basis, to be offered at the
discretion of the President to investors. These options would be priced at
the time granted, at a price above the then current price of the Company's
common shares. Further, that each option shall be for a period established by
the President at the time they are granted.
On April 25, 2000, the Company established a qualified stock optionplan
of 5,000,000 common shares of stock primarily to attract and act as an
incentive to both management and employees. The exercise price, vesting
period, and expiration date will be determined at the time of grant.
In March, 2000 the Board of Directors authorized the creation of a stock
plan by its subsidiary company which is developing the B2B internet
application. The plan, in the amount of 20 million options, was created to
attract and retain highly skilled personnel to the new enterprise. Terns of
the plan call for the options to be issued from time to time to current or
future employees, board members, advisory board members or affiliates of the
subsidiary company in quantities and at exercise prices and with a term to be
set solely by the Company's President/CEO. Initially, the Company granted 8
million options to the Company's President/CEO with an exercise price of $1
each which can be exercised in any quantity at any time up to the fifth
anniversary of the grant.
As part of the Employment Agreement entered into between the Company and
David Smith in conjunction with its acquisition of N2 Networking, Inc., the
Company granted David Smith options to purchase up to 450,000 common shares of
the Company at a purchase price $0.50 per share. The options shall constitute
"Vested Options" at a rate equal to 12,500 options shares per month for the 36
month term of the Employment Agreement. In addition, Mr. Smith was granted
options to purchase 1,500,000 common shares in the Company's subsidiary
corporation which is developing the B2B internet application at the rate of
500,000 each year for the three-year term of his Employment Agreement. The
options can be exercised at $1 in the first year, $3 in the second year and $5
in the third year. These options would become fully vested in the event a
majority of the Company's stock was acquired by a third party.
The common stock issued pursuant to all of the aforementioned options are
"restricted" as set forth under the Securities and Exchange Commission Rule
144.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion provides information on results of operations,
liquidity, capital resources, and the impact of inflation on the Company. The
financial statements and notes thereto also contain information that is
pertinent to this analysis.
General Financial Condition
The Company expects cash flow from operations to be negative over the
next fiscal year. Depending on the success of the Company's efforts to
develop and bring its Business-to-Business Internet application to market
combined with the market's acceptance of the application, management believes
that the Company will need to supplement its present working capital in order
to support the Company's operations over the next 12 months. Additional
working capital may be sought through additional debt or equity private
placements, loans from banks or related parties (officers, directors or
shareholders), or from industry-available funding sources at market rates of
interest, or a combination of the above. The ability to raise necessary
financing will depend on many factors, including the prevailing economic and
market conditions at the time financing is sought. No assurances can be given
that any necessary financing can be obtained on terms favorable to the
Company, or at all.
The Company has depleted most of its cash resources and does not possess
the collateral to borrow from its lenders. The Company is currently seeking
$3 million in financing to continue the development and launch of its B2B
internet application. While current cash on hand is not sufficient to meet
ongoing operating expenses and there can be no assurances that financing in
the amount and on terms acceptable to the Company will be available within the
time frame required, management for the Company believes that such financing
is available given perceived market interest in its B2B internet application.
The Company has sustained operations through:
- a combination of private placements, equity issuances and loans from
its President/CEO.
- suspending any cash compensation to any officers, directors or
employees.
- multitasking by the Company's limited staff of responsibilities that
in most corporations would be handled individually by a larger
number of employees.
- receipt of securities by a majority of the Company's outside
professionals as payment for fees in lieu of cash payments.
Management has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to provide the
Company with the ability to continue in existence:
- The Company has reduced operating expenses and has no debt other
than deferred payroll and amounts due to its CEO and a related
party.
- The Company is optimistic that financing is available for the
Company's future plans through additional debt or equity private
placements, additional notes payable to banks or related parties
(officers, directors or shareholders), or from industry-available
funding sources at market rates of interest, or a combination of
these.
The ability to raise necessary financing will depend on many factors,
including the perceived success of the Company's Business-to-Business
Internet application by the investment community and the economic and market
conditions prevailing at the time financing is sought.
Results of Operations:
During the recently completed fiscal year the Company operated two
Business-to-Consumer ("B2C") websites, Westerngold.com and a seasonal website,
eChristmastrees.com. The Company sold Westerngold.com in May, 2000 after
determining the potential for significant return was limited. The Company
subsequently sold eChristmastrees.com [See: Subsequent Events].
Shortly after the launch of Westerngold.com in August, 1999 management
determined the market potential for B2C websites in general and
westerngold.com in particular, was less than forecasted and held no future for
the Company due to the under-performance of Westerngold.com. Management for
the Company soon recognized that consumers were not using retail websites to
make purchases sufficient to cover the branding, advertising and operating
costs associated with maintaining the websites. The Company placed its
websites and domain names for sale and after considerable research, decided to
bring a new business-to-business ("B2B") internet application to market. From
August, 1999 the Company has devoted its resources to developing and bringing
to market its internet application, as described below.
Corporate Direction - Business-to-Business ("B2B") Internet
Application
The Company extensively researched the internet marketplace for an area
where it could profit from its expertise. An area in the business-to-
business marketplace was discovered and since August, 1999, the Company has
devoted all its resources to the development and introduction to market of
its B2B Internet application. It is anticipated the new application will
undergo testing and market introduction in the first quarter of 2001, although
no assurances of an exact date can be give due to the financing requirements
combined with the complexities involved in its implementation.
Details surrounding the application remain secret for competitive
reasons. The Company believes should news of the application become known,
other larger, better financed Internet companies would be in a position to
either beat the Company to market or out-market the Company, thereby
restricting the Company's growth and limiting the potential return for its
shareholders. The Company has assembled an experienced, skilled management
team for the project and initial presentations to major NYSE and NASDAQ
corporations together with smaller organizations have been well received,
although each corporation has its own method and criteria in evaluating such
an application.
The Company will require funding of $3 million to bring the application
to its full market potential. Management believes that such financing will be
available, although there can be no assurances that financing in the amount
and on terms acceptable to the Company will be available within the time frame
required.
N2 Networking Acquisition
On May 31, 2000 the Company entered into a definitive agreement
to acquire all of the issued and outstanding common stock of N2
Networking, Inc. for 500,000 restricted common shares plus the
assumption of a six-month $100,000 note secured by the stock of N2
Networking, Inc. Under the terms of the Stock Purchase Agreement,
within 180 days of the acquisition date, the Company is to have
obtained the financing it needs in order to fund the working capital
needs of a new Company subsidiary and it is to pay off the non-trade
liabilities of N2 networking as of the acquisition date. N2
Networking, Inc. operates n2.net, a full-service San Diego, California
based internet service provider founded in 1995. n2.net has both
residential and commercial accounts with this acquisition being
consistent with the Company's previously announced strategy. [See:
Chief Technology Officer].
eChristmastrees.com
www.eChristmastrees.com , the Company's first retail e-commerce website,
re-launched for the holiday season in November, 1999.
The Company had previously launched and operated the site for an approximate
30-day period during 1998's holiday season where it met with significant media
coverage, critical acclaim and visitations from individuals in 85 foreign
countries. The website sold three varieties of premium grade fresh-cut
Christmas trees in various sizes, plus two types of Holiday wreaths. During
the 1998 holiday season, the Company placed over 4 million banner ads in less
than four weeks at significant expense compared to revenues generated
although the website benefited from branding awareness. This year the
Company eliminated banner advertising preferring instead to create Multi-
Merchant Marketing Partnerships with larger, established, high-profile
Internet merchants such as OfficeMax.com, FlowersUSA,com, PrimeWine.com and
GiftWrap.com together with media marketing and outsourcing a website search
engine enhancement program. eChristmastrees.com was the beneficiary of
articles in the New York Times and Washington Post.
Sales and gross revenues, although not significant, increased
approximately 2 1/2 times over 1998's figures. As a result, although modest,
eChristmastrees.com showed a positive cash flow in its second selling season.
[See: Subsequent Events]
westerngold.com
Consistent with its previously announced strategy to exit the business-to
consumer ("B2C") Internet marketplace, the Company sold certain assets of its
wholly-owned subsidiary, westerngold.com corp. to a newly formed South Dakota
limited partnership. The assets included right and title to the
westerngold.com domain name, logo and web site. The Company had stated in its
previously filed Form 10-QSB for the quarter ended January 31, 2000 that
current revenues being generated on the westerngold.com web site were not
sufficient to continue to support the web site's ongoing expenses and as
such, westerngold.com will be either sold or shut down. As with the vast
majority of B2C web sites, westerngold.com has operated at a loss since
inception. The Company chose an offer of $20,000 as a preferred alternative
to closing the site. westerngold.com corp. has remaining obligations of
$57,979 consisting primarily of media advertising, web site and internet-
related expenses which will be absorbed by E-Commerce West Corp.
Planned Wyatt, Missouri Riverboat Casino Development
E-Commerce West believes it has a significant asset remaining in gaming
as a subsidiary company, Royal Casino Group, Inc., has invested a
considerable amount of time and money over the last 5 1/2 years in the
planning and development of a riverboat casino entertainment center on the
Mississippi River near Wyatt, Missouri.
Royal Casino Group currently has the following items in connection with
this asset: an exclusive 25-year agreement with the city; 50 acres of land on
the Mississippi River under its control; a Water Quality Certification permit
from the Missouri Department of Natural Resources; a legal opinion from the
attorney retained by the City of Wyatt to annex the land where the riverboat
casino would be located stating that the annexation of the land into the city
has been completed; and its requisite docking permit from the Army Corps of
Engineers. Over 15,000 vehicles daily pass in view of the location. A
market of 2 million people reside within 100 miles of the site. The closest
competition is a riverboat casino located 50 miles away which opened in 1993
and generated gross revenues in excess of $80 million in 1999. "The Royal
Missourian" is projected to have gross revenues of $40-$60 million with an
EBITDA of $10-$15 million on a total investment of $20-$25 million. The
Company is exploring the sale of substantially all the assets of the
transaction to another gaming company. Should the Company be successful in
its efforts to sell its interest and at a price satisfactory to the Company,
then the proceeds of the sale will be applied to the Company's current
business endeavors. The Company has no interest in participating in internet
gaming.
Strategic Relationship
In March the Company formed a strategic alliance with Corporate Vision,
Inc. a publicly-traded holding and venture capital company with diversified
interests in real estate natural resources and the Internet. Corporate
Vision holds an equity position in a new B2B Internet browser, has acquired
an internet search engine and has a pending purchase of a free e-mail web
site. The association included a dual cross-ownership equity and consulting
program whereby the Company initially issued 100,000 common shares to
Corporate Vision comprised of 70,000 restricted shares pursuant to Rule 144
of the Securities & Exchange Commission and 30,000 shares from the Company's
S-8 Registration in exchange for the issuance by Corporate Vision to the
Company of 64,100 tradable common shares from its evergreen registration
statement. A subsequent issuance pursuant to the program in July called for
the Company to issue 50,057 shares from the Company's S-8 registration and
116,800 restricted common shares while Corporate Vision issued the Company
its 100,000 common shares from its evergreen registration statement. The
Company is free to sell these shares on the open market to fund its ongoing
activities. Both the Company and Corporate Vision continue an ongoing dialog
to identify potential internet-related opportunities. The Board of Directors
has authorized the Company's President/CEO to complete any subsequent similar
transactions in the future at his discretion.
Consolidated Corporate Information
The Company currently derives its revenues from the operations of N2
Networking, Inc. During the recently completed fiscal year the Company
experienced modest revenues resulting from the operation of its first year
round website, Westerngold.com, prior to selling the business in May, 2000.
Additional revenues were derived from the seasonal website,
eChristmastrees.com [See: Subsequent Events]. The Company does not expect to
receive additional revenues until its business-to-business internet
application is brought to market.
Selling, general and administrative expenses for the twelve months ended
July 31, 2000 were $670,342 and consisted primarily of salaries, which were
deferred, and professional fees. This is approximately 15% more than the
selling, general and administrative expenses of $583,205 for the prior twelve
months ended July 31, 1999. Funds were expensed and are expected to continue
to be expensed in the ongoing development and introduction to market of the
Company's planned B2B internet application.
Liquidity and Capital Resources
As of July 31, 2000, the Company had $31,120 in cash and cash
equivalents, an increase of $21,627 over the year ended July 31, 1999 and a
working deficit of $393,153. Since inception, the Company has financed its
operations primarily through private offerings of equity securities and loans
from officers.
Net cash used in continuing operating activities was $118,588 for the year
ended July 31, 2000.
Net cash provided by financing activities was $131,981 for the year ended
July 31, 2000. Net cash provided by financing activities consisted of loans
from officers and a private equity offering.
The Company expects cash flows from operating activities to continue to be
negative over the next fiscal year. Depending on the success of the Company's
efforts to develop, implement, market and manage its B2B Internet application,
management believes that the Company will need to supplement its present
working capital in order to support the Company's operations over the next 12
months. Current cash on hand is sufficient to meet short-term ongoing
operating expenses. The Company is optimistic that additional financing will
be available, although no assurances can be given that any financing can be
obtained on terms favorable to the Company, or at all. Additional working
capital may be sought through equity private placements and/or additional
notes payable to related parties (officers, directors or shareholders). The
ability to raise financing will depend upon many factors, including the
Company's then current common stock price, the nature and prospects of the
Company's new internet application and the economic and market conditions
prevailing at the time financing is sought.
Other Stock Issuances
During the year the Company issued 78,010 common shares for legal and
accounting services valued at $25,295.69; 91,101 common shares for computer,
website development and enhancement related services valued at $10,669.60;
112,280 common shares for new business development consulting valued at
$51,950; 11,324 common shares for regulatory and stock services valued at
$5,472.25; 49,740 common shares for advertising and design services valued at
$9,705; 2,500 common shares for eChristmastrees.com services valued at
$2,250; and for the Company's'B2B Internet application: 13,730 common shares
for marketing services valued at $12,050; 10,000 common shares valued at
$9,000 for technology services; 22,000 common shares valued at $13,560 for
security services and 20,119 common shares valued at $13,006 for new business
development. All the aforementioned shares were issued from the Company's
active S-8 Registrations, #333-59975 and 333-37710. In addition, the Company
issued 186,800 common shares to Corporate Vision, Inc. [See: Strategic
Relationship] and 100,000 common shares to a third party pursuant to a
private placement at $0.50 per share. The latter two issuances were pursuant
to Rule 144 of the Securities & Exchange Commission and are therefore
restricted securities.
Dissolution of Subsidiary
Having no further use for the companies, during the year the Company
dissolved Atlantic-Pacific Corp and Westerngold.com [See: Subsequent Events].
S-8 Registration
The Company filed an S-8 registration (file No. 333-37710) with the
Securities & Exchange Commission enabling the Company to issue 750,000 common
shares to employees and corporate consultants in lieu of cash. This
registration allows the company to conserve its cash resources while still
being able to attract the talent whose skills are necessary to continue to
grow the Company. The registration was effective May 24, 2000. To date, as
mentioned elsewhere in this document, 50,000 shares have been issued from
this registration.
Equipment Rental, Overhead, Rent, Support Services
The Company leases approximately 3,600 square feet for its corporate
headquarters in Deadwood, South Dakota for $1,250 per month on a lease through
April, 2000. As the Company is planning to relocate its corporate
headquarters to San Diego, California once suitable funding has been achieved
for its new internet application, the Company chose not to exercise a renewal
option for a second year at $1,500 per month, however it remains in the
facility on a month-to-month basis at $1,250 per month. The property is
suitable for the current needs of the Company.
Impact Of Inflation Upon The Company
Inflation has not impacted, nor would it be expected to have an impact
upon the Company.
Item 8 Financial Statements and Supplementary Data.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONTENTS
July 31, 2000
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 15
FINANCIAL STATEMENTS
Consolidated Balance Sheet 16
Consolidated Statements of Operations 17
Consolidated Statements of Comprehensive Loss 18
Consolidated Statements of Shareholders' Deficit 19 - 20
Consolidated Statements of Cash Flows 21 - 22
Notes to Consolidated Financial Statements 23 - 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
E-Commerce West Corp. and subsidiaries
We have audited the accompanying consolidated balance sheet of E-Commerce
West Corp. (a Utah corporation) and subsidiaries as of July 31, 2000 and the
related consolidated statements of operations, comprehensive loss,
shareholders' deficit, and cash flows for each of the two years in the period
ended July 31, 2000. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of E-Commerce West
Corp. and subsidiaries as of July 31, 2000, and the consolidated results of
their operations and cash flows for each of the two years in the period ended
July 31, 2000 in conformity with generally accepted accounting principles.
The accompanying financial statements for the year ended July 31, 2000 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company's recurring
losses from operations and limited capital resources raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 20, 2000
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
ASSETS
Current assets
Cash and cash equivalents $31,120
Note receivable - related party 2,962
Marketable Securities - available for sale 49,806
Inventory 8,655
Prepaid legal services 91,663
Prepaid expenses and other assets 282
Total current assets 184,488
Property and equipment, net 29,739
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $19,215 326,664
Total assets $540,891
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Notes payable - related parties $174,504
Accounts payable 113,436
Accrued payroll and payroll taxes 207,654
Deferred revenue 8,860
Net liabilities of discontinued operations 73,187
Total current liabilities 577,641
Shareholders' deficit
Preferred stock, $.001 par value, 100,000,000 shares authorized
Series A Convertible preferred stock 1,100,000 shares
issued and outstanding 1,100
Series B Convertible preferred stock no shares
issued and outstanding -
Common stock, $.001 par value
150,000,000 shares authorized
18,146,225 shares issued and outstanding 18,146
Additional paid-in capital 7,327,764
Other comprehensive loss (33,131)
Accumulated deficit (7,350,363)
Total shareholders' deficit (36,750)
Total liabilities and shareholders' deficit $ 540,891
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended July 31,
2000 1999
Revenues $ 59,834 $ 5,334
Cost of goods sold 17,519 4,807
Gross profit 42,315 527
Selling, general, and administrative expenses ( 715,608) 583,205
Loss from operations ( 673,293) (582,678)
Other income (expense)
Interest income 3,386 3,083
Interest expense ( 8,275) -
Other income 3,661 39,949
Realized loss on investments ( 11,178) -
Total other income (expense) ( 12,406) 43,032
Loss from continuing operations before
provision for income taxes ( 685,699) (539,646)
Provision for income taxes 1,074 100
Net loss from continuing operations ( 686,773) (539,646)
Discontinued operations
Loss from operations - ( 8,350)
Loss on disposition of operations ( 23,853) ( 46,063)
Net loss from discontinued operations ( 23,853) ( 54,413)
Loss before extraordinary item ( 710,626) (594,159)
Extraordinary item
Gain on forgiveness of accounts payable,
net of income tax expense of $0 45,373 -
Net loss $( 665,253) $ (594,159)
Basic loss per share
From continuing operations (0.05) (0.06)
From discontinued operations - -
From extraordinary item - -
Total basic loss per share $ (0.05) $ (0.06)
Weighted-average common shares outstanding 12,942,384 9,802,123
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended July 31
2000 1999
Net loss $ (665,253) $ (594,159)
Other comprehensive loss, net of tax
Unrealized loss on marketable securities ( 33,131) -
Comprehensive loss $ (698,384) $ (594,159
<TABLE> E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
For the Years Ended July 31,
<CAPTION>
Preferred Stock Additional Other
Series A Series B Common Stock Paid-in Comprehensive Accumulated
Shares Amount Shares Amount Shares Amount Capital Income Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
July 31, 1998 1,100,000 $ 1,100 - $ - 8,642,102 $ 8,642 $5,856,840 $ - $(6,091,217) $(224,635)
Issuance of
restricted
common stock
for cash 700,000 700 91,800 92,500
Issuance of
common stock
for services
rendered
and compensation 480,317 480 183,608 184,088
Issuance of
restricted
common stock
for services
rendered and
compensation 2,633,333 2,633 333,972 336,605
Common shares
returned
and cancelled (51,250) (51) (51)
Net loss ( 594,159) ( 594,159)
Balance,
July 31, 1999 1,100,000 1,100 - - 12,404,502 12,404 6,466,220 - (6,685,376) ( 205,652)
Issuance of
restricted
common stock
for investments 186,800 187 136,313 136,500
Issuance of
common stock
for services
rendered 410,803 411 152,547 152,958
Issuance of
restricted
common stock
for compensation 4,544,120 4,544 237,284 241,828
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
For the Years Ended July 31,
(CONTINUED)
Preferred Stock Additional Other
Series A Series B Common Stock Paid-in Comprehensive Accumulated
Shares Amount Shares Amount Shares Amount Capital Income Deficit Total
Issuance of
restricted
common stock
in connec-
tion with the
acquisition
of N2Networking 500,000 500 249,500 250,000
Issuance of
restricted
common stock
for cash 100,000 100 49,900 50,000
Stock options
issued as
compensation to
an employee 36,000 36,000
Unrealized loss on
marketable
securities (33,131) ( 33,131)
Net loss ( 665,253) ( 665,253)
Balance,
July 31, 2000 1,100,000 $ 1,100 - $ - 18,146,225 $ 18,146 $7,327,764 $(33,131) $(7,350,629) $ ( 36,750)
</TABLE>
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended July 31,
2000 1999
Cash flows from operating activities
Net loss from continuing operations $( 686,773) $(539,746)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 48,972 7,367
Issuance of stock for services rendered
and compensation 152,958 520,643
Options issued as compensation to
An employee 36,000 -
Loss on inventory write down 7,697 -
Realized loss on sale of investments 11,178 -
Extraordinary item 45,373 -
(Increase) decrease in
Accounts receivable 32 2,930
Prepaid expenses and other assets 58,690 (112,345)
Inventory - ( 7,597)
Other assets - ( 3,177)
Increase (decrease) in
Accounts payable ( 20,631) ( 70,956)
Accrued payroll and payroll taxes 229,441 84,367
Deferred revenue ( 1,525) -
Net cash used in continuing operating activities ( 118,588) (118,514)
Net cash used in discontinued
operating activities ( 56,217) ( 18,319)
Net cash used in operating activities ( 174,805) (136,833)
Cash flows from investing activities
Sale of westerngold.com 20,000 -
Acquisition of N2Networking, Inc. 10,296 -
Sale of investments 42,385 -
Notes receivable - 42,000
Acquisitions of property and equipment ( 8,230) ( 63,350)
Net cash used in investing activities 64,451 ( 21,350)
Cash flows from financing activities
Net proceeds from related party 81,981 3,561
Issuance of common stock 50,000 92,500
Net cash provided by (used in)
financing activities 131,981 96,061
Net increase (decrease) in cash and cash
equivalents 21,627 (62,122)
Cash and cash equivalents, beginning of year 9,493 71,615
Cash and cash equivalents, end of year $ 31,120 $ 9,493
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended July 31,
(CONTINUED)
Supplemental disclosure of non-cash investing and financing activities
During the year ended July 31, 2000, the Company completed the following:
- issued 97,333 shares of restricted common stock to a former officer as
payment for accrued compensation of $33,333, less forgiveness of a note
receivable for $9,000 to the Company.
- issued 186,800 shares of restricted common stock valued at $136,500 to an
outside third party in exchange for equity securities of the third party.
- issued 4,446,787 shares of restricted common stock valued at $217,495 to
the Company's Chief Executive Officer as payment for accrued compensation.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 1 - NATURE OF BUSINESS
In July 1998, Royal Casino Group, Inc., a Utah corporation, changed its
name to E-Commerce West Corp. The consolidated financial statements
include the accounts of E-Commerce West Corp. and its wholly-owned
subsidiaries, N2 Networking, Inc., Royal Casino Group, Inc.,
westerngold.com corp. and a separate company formed for the Company's
new Internet application (collectively, the "Company"). A subsidiary,
Atlantic-Pacific Corporation, operated a limited stakes gaming
establishment and hotel in Deadwood, South Dakota under the name of
Goldiggers Hotel and Gaming Establishment ("Goldiggers"). Goldiggers
was acquired by the Company on June 13, 1996. Due to prevailing
economic conditions pertaining to the gaming industry coupled with the
long-term negative industry outlook, effective January 31, 1998, the
Company elected to close its gaming operations and enter the e-Commerce
business. Goldiggers was dissolved as a corporation on July 28, 1999.
During the year ended July 31, 1998, the Company formed two
subsidiaries. RCG Corp was incorporated in South Dakota on July 2,
1998, and during the year ended July 31, 2000, its name was changed to
Royal Casino Group, Inc. GolddiggersWest.com, Inc was incorporated in
South Dakota on May 21, 1998, and its name was changed to
Westerngold.com on March 3, 1999. Westerngold.com was sold on May 19,
2000.
NOTE 2 - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which assume that the
Company will continue as a going concern. However, during the year
ended July 31, 2000, the Company incurred a net loss from continuing
operations of $686,773, it had negative cash flows from continuing
operations of $118,588, and its current liabilities exceeded its
current assets by $393,153. Recovery of the Company's assets is
dependent upon future events, the outcome of which is indeterminable.
In addition, the Company's attainment of profitable operations is
dependent upon obtaining adequate financing to support its expansion
activities and achieving a level of revenues adequate to support the
Company's cost structure. In view of these matters, realization of a
major portion of the assets in the accompanying balance sheet is
dependent upon the Company's ability to meet its financing
requirements.
Management has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to provide the
Company with the ability to continue in existence:
- The Company has reduced operating expenses and has no debt other
than deferred payroll and payroll taxes and amounts due to related
parties.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 2 - REALIZATION OF ASSETS (Continued)
- The Company is optimistic that financing is available for the
Company's future plans through additional debt or equity private
placements, additional notes payable to banks or related parties
(officers, directors, or shareholders), from industry-available funding
sources at market rates of interest, or a combination of these.
NOTE 3 - ACQUISITION AND DISPOSALS
Acquisition
On May 31, 2000, the Company acquired N2Networking, Inc. ("N2N"), a
California corporation, that provides access to the Internet to
approximately 500 customers. The Company purchased the issued and
outstanding shares of common stock of N2N by issuing $250,000 in
restricted shares of common stock of the Company. Under the terms of
the purchase agreement, within 180 days of the acquisition date, the
Company is to have obtained the financing it needs in order to fund the
working capital needs of a new Company subsidiary and it is to pay off
the non-trade liabilities of N2N as of the acquisition date. The
acquisition was accounted for using the purchase method.
The assets acquired and liabilities assumed by the Company were as
follows:
Cash $ 10,296
Accounts receivable 32
Property and equipment, at net book value 12,336
Accounts payable (8,633)
Accrued expenses (4,525)
Deferred revenue (10,385)
Notes payable - related party (95,000)
Total net assets (95,879)
Excess of cost over fair value
of net assets acquired 345,879
Consideration $ 250,000
The information provided in the above table is based on N2N's audited
financial statements as of May 31, 2000. The consideration is based on
the issuance of 500,000 restricted shares of the Company's common stock
at the closing price of the Company's common stock on May 31, 2000 of
$0.72, discounted by 44% to reflect the thin trading of the Company's
common stock and the issuance of restricted shares. The excess of cost
over fair value of net assets acquired is being amortized on a
straight-line basis over three years.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 3 - ACQUISITION AND DISPOSALS (Continued)
Disposal of Gaming Activities
As of January 31, 1998, the Company and its board of directors shut
down its gaming establishment and hotel in Deadwood, South Dakota. As
a result, the gaming establishment and hotel operations are accounted
for as discontinued operations and, accordingly, its operations are
reported in this manner for all periods presented. All assets and
liabilities of discontinued operations are presented as net liabilities
of discontinued operations. There are no gaming establishment and
hotel revenues included in the loss from discontinued operations.
Given the Company's losses and discontinued operations' historical
losses, there is no tax effect on the disposition of the operations.
The following is a summary of net liabilities from discontinued
operations:
2000 1999
Current liabilities $(15,208) $(132,326)
Disposal of Website
On May 19, 2000, the Company sold its westerngold.com website to a
third party for $20,000. The sale of westerngold.com was limited to
certain assets, namely the website of westerngold.com, the domain names
westerngold.com and westerngold.net, and all information contained in
the Intershop Program, such as customer lists, product database, and
sales records. The Company recognized a loss of $26,774 related to the
website sale. The Company retained all of the remaining unsold
inventory, which was written off at the time of the sale. As a result,
operations of westerngold.com through July 31, 2000 are reported as
discontinued operations. The results from discontinued operations
included total revenues of $10,072 and $1,062 and net loss from
operations of $94,310 and $44,862, respectively, for the years ended
July 31, 2000 and 1999, respectively.
The following is a summary of net liabilities from discontinued
operations:
2000 1999
Current liabilities $ (57,979) $ -
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of E-
Commerce West Corp. and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in the
consolidation.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 disclosures 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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market and consists of raw materials.
Revenue Recognition
The Company earns revenue from the provision of Internet access
services through its subsidiary, N2N, and from the sale of Christmas
trees and related items through its seasonal website,
eChristmastrees.com. The Company recognizes revenue when the products
are shipped or when the service is provided.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives as
follows:
Purchased software 3 years
Furniture and equipment 3 to 7 years
Maintenance and minor replacements are charged to expense as incurred.
Expenditures which materially extend the useful lives of capital assets
are capitalized.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the year
in which those temporary differences are expected to be recovered or
settled. Reserves for deferred tax assets are recorded when ultimate
recovery of such assets is deemed uncertain.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
The Company expenses advertising costs when the advertisement takes
place. Advertising expense for the years ended July 31, 2000 and 1999
was $35,765 and $24,716, respectively.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the
assets to future net cash flows expected to be generated by the assets.
If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. To date, no
impairment has occurred.
Comprehensive Income
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-
owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains and losses on available-
for-sale securities. Total comprehensive loss is presented in the
statements of comprehensive loss.
Loss per Share
The Company reports loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic loss per share is computed by dividing
loss available to common shareholders by the weighted-average number of
common shares available. Diluted loss per share is computed similar to
basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. Diluted loss per share is not
presented for the years ended July 31, 2000 and 1999 because common
stock equivalents are anti-dilutive.
Reclassifications
Certain amounts included in the prior year financial statements have been
reclassified to conform with the current year presentation.
Recently Issued Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 138, "Accounting for Certain Instruments and Certain Hedging
Activities." This statement is not applicable to the Company.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement
is not applicable to the Company.
NOTE 5 - MARKETABLE SECURITIES - AVAILABLE-FOR-SALE
The Company's marketable securities, which consist of corporate equity
securities, are reported at fair market value.
NOTE 6- PROPERTY AND EQUIPMENT
Property and equipment at July 31, 2000 consisted of the following:
Purchased software $ 8,230
Furniture and equipment 129,884
138,114
Less accumulated depreciation 108,375
Total $ 29,739
NOTE 7 - COMMITMENTS
Leases
On November 9, 1995, the Company signed a definitive 25-year docking
and franchise agreement with the city of Wyatt, Missouri, granting the
Company the exclusive right to development and manage a riverboat
casino entertainment center on the Mississippi River. On March 23,
1996, the Company entered into a three-year lease, plus renewal options
for land on the Mississippi River near Wyatt, Missouri. Payments under
the lease will be required only if the Company begins construction or
if the Missouri Gaming Commission selects the Company for gaming
license review. In the event that one of these conditions is met, the
Company will be required to pay lease payments of $50,000 annually. On
May 12, 1999, the lease term was extended to January 13, 2002.
During the year ended July 31, 2000, the Company entered into a non-
cancelable lease agreement to occupy office space in San Diego,
California in connection with its N2N subsidiary.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 7 - COMMITMENTS (Continued)
The lease has a three-year term with an effective date of August 1,
2000. Future minimum lease payments under the operating lease as of
July 31, 2000 were as follows
Year Ending
July 31,
2001 $ 11,248
2002 11,830
2003 12,308
2004 1,029
Total $ 36,415
Rent expense was $16,730 and $9,548 for the years ended July 31, 2000
and 1999, respectively.
Employment Agreements
The Company entered into two employment agreements with key employees
of the Company. Future minimum payments under the agreements as of
July 31, 2000 were as follows:
Year Ending
July 31,
2001 $ 350,000
2002 410,000
2003 475,000
2004 325,000
Total $1,560,000
NOTE 8 - SHAREHOLDERS' DEFICIT
Preferred Stock
The Company has 100,000,000 authorized shares of preferred stock.
1,100,000 shares were designated as Series A Convertible preferred
stock ("Series A Convertible") at July 31, 2000. 1,000,000 shares were
designated as Series B Convertible preferred stock ("Series B
Convertible") at July 31, 2000.
The Series A Convertible is redeemable only by the Company and is non-
dividend bearing. The conversion right expired during the year ended
July 31, 2000. Upon liquidation of the Company, holders of Series A
Convertible shall be entitled to receive $3 in cash from the assets of
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Preferred Stock (Continued)
the Company for each share held. Effective August 1, 1996, the Company
amended its articles of incorporation to change the par value of its
Series A Convertible from no par to $0.001 par value per share. The
accompanying financial statements have been restated to reflect the new
par value for all periods presented. The Company had 1,100,000 shares
of the Series A Convertible issued and outstanding at July 31, 2000.
The Series B Convertible is redeemable only by the Company and is non-
dividend bearing. The Company had no shares issued and outstanding of
the Series B Convertible at July 31, 2000.
Common Stock
During the year ended July 31, 2000, the Company completed the
following:
- issued 4,446,787 shares of restricted common stock to the
President of the Company for compensation at prices ranging from $0.03
to $0.11 per share. It also issued 97,333 shares of restricted common
stock to a former officer for accrued compensation of $33,333, less the
forgiveness of a note receivable to the Company for $9,000 at a price
of $0.25 per share.
- issued 186,800 restricted shares of common stock at prices ranging
from $0.312 to $1.428 as payment for the purchase of marketable
securities.
- entered into a definitive agreement to acquire all of the issued
and outstanding stock of N2N for 500,000 shares of the Company's
restricted common stock valued at $0.50 per share.
- issued 385,803 shares of its common stock for services rendered at
prices ranging from $0.06 to $1.22 per share.
During the year ended July 31, 1999, the Company completed the
following:
- issued 1,133,333 shares of its restricted common stock to the
President of the Company for compensation at prices ranging from $0.125
to $0.15 per share.
- issued 1,500,000 shares of its restricted common stock for
services rendered and compensation at prices ranging from $0.001 to
$0.20 per share.
- issued 480,317 shares of its common stock for services rendered at
prices ranging from $0.14 to $0.50 per share.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Warrants
The Company had 1,611,842 Series B warrants issued and outstanding at
July 31, 2000 and 1999. These warrants entitle the holder to purchase
one share of common stock at a purchase price of $20 and are callable
by the Company for $0.20 per warrant. The expiration date of the
Series B warrants is January 26, 2001.
During the years ended July 31, 1997 and 1996, the Company issued
50,000 and 500,000 Series C warrants, respectively. These warrants
entitle the holder to purchase one share of common stock at a purchase
price of $4. The Series C warrants are callable by the Company for $1
per warrant and expire on December 31, 2000.
Options
Under the terms of its nonqualified employee stock option plan, the
Company is authorized to establish a plan for up to 250,000 shares of
common stock. Pursuant to this plan, the Company has issued 170,000
options to an officer/director/shareholder. The options may be
exercised at a purchase price of $1.25 per share. During the year
ended July 31, 1997, the expiration date was extended from January 31,
1999 to December 31, 2003.
During the year ended July 31, 1997, the terms of the Company's
nonqualified stock option plan were modified to authorize the Company
to issue 3,000,000 options at a price that is above the market price on
the grant date. Pursuant to the plan, at July 31, 1999, the Company
had issued 918,000 options to an officer/director/shareholder and to a
consultant. The options may be exercised at a purchase price from
$0.60 to $0.88 per share and expire on December 31, 2003.
During the year ended July 31, 1997, the Company was also authorized to
issue 500,000 options to investors as an inducement. The options will
be issued at a price above the then current market price and shall be
for a period established at the time they are granted. At July 31,
2000, none of these options had been issued.
On June 30, 1999, the Company granted options to purchase 50,000 shares
of common stock of the Company's subsidiary, Westerngold.com corp., to
each of three management consultants. The options vest on the date of
grant, have an exercise price of $1, and expire five years from the
date of grant. As the Company sold Westerngold.com corp. prior to July
31, 2000, the Company replaced the 50,000 options related to
Westerngold.com corp. with options to purchase 50,000 shares of the
common stock of one of the Company's subsidiaries with no changes in
exercise price or expiration date. The options are not included in the
stock option plans below.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Options (Continued)
On April 25, 2000, the Company established a qualified stock optionplan
of 5,000,000 common shares of stock primarily to attract and act as an
incentive to both management and employees. The exercise price, vesting
period, and expiration date will be determined at the time of grant.
During the year ended July 31, 2000, as part of the Company's
acquisition of N2N, the Company granted N2N's former President stock
options under the qualified plan to purchase 450,000 shares of the
Company's common stock. The options have an exercise price of $0.50,
vest pro rata over three years, and expire only on the employee's
termination. The Company recorded compensation expense of $36,000 for
the intrinsic value of these options during the year ended July 31,
2000.
Activity for the Company's stock option plans is as follows:
Weighted
Average
Exercise
Shares Price
Balance, July 31, 1998 and 1999 1,088,000 $ 0.71
Granted 450,000 $ 0.50
Outstanding, July 31, 2000 1,538,000 $ 0.65
Exercisable, July 31, 2000 1,538,000 $ 0.65
The weighted-average life of the options outstanding and exercisable at
July 31, 2000 was 29 to 34 months. Options available for future grant
at July 31, 2000 were 7,212,000. Additional information relating to
these options is as follows:
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Stock Stock Contractual Price Price
Exercise Options Options Life of Options of Options of Options
Price Outstanding Exercisable Outstanding Outstanding Exercisable
$ 0.50 450,000 450,000 2.8 years $ 0.50 $ 0.50
$ 0.60 900,000 900,000 2.4 years $ 0.60 $ 0.60
$ 0.88 18,000 18,000 2.4 years $ 0.88 $ 0.88
$ 1.25 170,000 170,000 2.4 years $ 1.25 $ 1.25
1,538,000 1,538,000
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Options (Continued)
In March 2000, the Board of Directors authorized the creation of a
stock option plan for one of the Company's wholly owned subsidiaries
for up to 20,000,000 shares of common stock. The options will be
granted in quantities and at exercise prices and with terms to be set
solely by the Company's President/Chief Executive Officer, and the plan
will be administered solely by the Company's President/Chief Executive
Officer. These options would become fully vested in the event a majority
of the Company's stock was acquired by a third party, if the Company was
merged into another entity, or if the Company filed for an Initial Public
Offering.
During the year ended July 31, 2000, the Company granted 8,000,000
options under this plan to the Company's President/Chief Executive
Officer. The stock options have an exercise price of $1, vest
immediately, and expire five years from the date of grant. The
President/Chief Executive Officer has issued 50,000 of these options to
each of the three members of the Company's Advisory Board.
During the year ended July 31, 2000, as part of the Company's
acquisition of N2N, the Company granted N2N's former President stock
options to purchase 1,500,000 shares of the subsidiary's common stock.
Of these options, 500,000 vest at the end of the first year of
employment at an exercise price of $1, 500,000 vest at the end of the
second year of employment at an exercise price of $3, and 500,000 vest
at the end of the third year of employment at an exercise price of $5.
The options expire only upon the employee's termination.
Activity for the subsidiary's stock option plan is as follows:
Weighted
Average
Exercise
Shares Price
Balance, July 31, 1998 and 1999 - $ -
Granted 9,500,000 $ 1.32
Outstanding, July 31, 2000 9,500,000 $ 1.32
Exercisable, July 31, 2000 8,000,000 $ 1.00
The weighted-average life of the options outstanding and exercisable at
July 31, 2000 was four years.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Options (Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost other than that required to be recognized by APB 25
for the difference between the fair value of the Company's common stock
at the grant date and the exercise price of the options has been
recognized. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant date for awards in
1999 and 1998 consistent with the provisions of SFAS No. 123, the
Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below for the years ended July 31, 2000 and
1999:
2000 1999
Net loss as reported $ (665,253) $ (594,159)
Net loss, pro forma $ (861,003) $ (594,159)
Basic loss per share as reported $ (0.05) $ (0.06)
Basic loss per share, pro forma $ (0.07) $ (0.06)
The pro forma amounts take into account the pro forma compensation
expense of the Company's and the Subsidiary's options. The fair value
of the Company's options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended July 31, 2000 and 1999: dividend yields
of 0% and 0%, respectively; expected volatility of 100% and 75%,
respectively; risk-free interest rates of 6.66% and 5.5%, respectively;
and expected lives of three and two years, respectively. The weighted-
average fair value of options granted during the years ended July 31,
2000 and 1999 was $0.52 and $0.79, respectively.
The fair value of the Subsidiary's options issued to employees
described above was estimated at the date of grant using the minimum
value method with the following weighted-average assumptions for the
years ended July 31, 2000 and 1999: dividend yields of 0% and 0%,
respectively; risk-free interest rates of 6.66% and 0%, respectively;
and expected lives of four and zero years, respectively. The weighted-
average fair value of options granted during the years ended June 30,
2000 and 1999 was $0 and $0, respectively, and the weighted-average
exercise price was $1.32 and $0, respectively.
For options granted under the Company's plans during the years ended
July 31, 2000 and 1999 where the exercise price was less than the stock
price at the date of the grant, the weighted-average fair value of such
options was $0.52 and $0, respectively, and the weighted-average
exercise price of such options was $0.50 and $0, respectively. No
options were issued during the year ended July 31, 2000 where the
exercise price was greater than or equal to the stock price at the date
of the grant.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
Options (Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
NOTE 9 - INCOME TAXES
The current provision for income taxes is the minimum tax due to the
States of Utah and South Dakota. The components of the Company's net
deferred taxes as of July 31, 2000 are as follows:
Deferred tax assets
Net operating loss carryforward $2,048,777
Outside services paid with restricted stock 63,446
Officer compensation in restricted stock 153,911
Capital loss carryforward 3,801
Unrealized loss on marketable securities 11,285
Property & Equipment 7,916
Total deferred tax assets 2,289,115
Less valuation allowance 2,289,115
Net deferred tax assets $ -
The Company has established a valuation allowance based on a number of
factors which impact the likelihood the deferred tax assets will be
recovered, including the Company's history of operating losses. Based
upon a weighting of all available evidence, management believes that
there is no basis to project significant United States-sourced taxable
income. Therefore, it is more likely than not that the deferred tax
assets will not be realized, and a full valuation allowance has been
established. The net change in the valuation allowance for the year
ended July 31, 2000 was an increase of $238,920. No provision for
income taxes for the years ended July 31, 2000 and 1999 is required,
except for minimum state taxes, since the Company incurred losses
during such years.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 9 - INCOME TAXES (Continued)
As of July 31, 2000, the Company had a consolidated federal net
operating loss carryforward of $6,025,815. This carryforward, if
unused, begins to expire in 2004.
Income tax expense differs from the amounts computed by applying the
United States federal income tax rate of 34% to income taxes as a
result of the following:
2000 1999
Computed "expected" tax benefit 34.0% 34.0%
Increase in income taxes resulting from
Change in the beginning-of-the-year balance
of the valuation allowance for deferred tax
assets allocated to income tax expense (34.0) (34.0)
Total -% -%
The overall effective tax rate differs from the federal statutory tax
rate of 34% due to operating losses not providing benefit for income
tax purposes.
NOTE 10 - EXTRAORDINARY ITEM
During April 2000, the Company negotiated a settlement regarding
certain amounts due to the Internal Revenue Service for payroll taxes
owed from the Company's subsidiary that operated a gaming establishment
and hotel in Deadwood, South Dakota. As a result of this settlement,
the Company recognized a gain on extinguishment of debt of $45,373
during the year ended July 31, 2000.
NOTE 11 - RELATED PARTIES
Note Receivable
The Company maintained a note receivable outstanding for $2,962 from an
officer/shareholder of the Company as of July 31, 2000. The note is
non-interest-bearing and is due on demand.
Notes Payable
Notes Payable consist of two notes totaling $74,306 and one note for
$100,198. The two notes are from the Company's Chief Executive
Officer, bear interest at 9% and 0% per annum, and have no repayment
terms. The third note is from a shareholder, bears interest at 4% per
annum, and is due on November 1, 2000.
E-COMMERCE WEST CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
NOTE 12 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer
systems to identify the systems that could be affected by ongoing Year
2000 problems. Upgrades to systems judged critical to business
operations have been successfully installed. To date, no significant
costs have been incurred in the Company's systems related to the Year
2000.
Based on the review of the computer systems, management believes all
action necessary to prevent significant additional problems has been
taken. While the Company has taken steps to communicate with outside
suppliers, it cannot guarantee that the suppliers have all taken the
necessary steps to prevent any service interruption that may affect the
Company.
NOTE 13 - SUBSEQUENT EVENTS
On September 25, 2000, the Company sold all of the assets of its
business known as eChristmastrees.com to the Company's former General
Manager in exchange for consideration of $82,186. The consideration
was satisfied through the forgiveness of past due invoices and accrued
compensation owed by the Company to the General Manager. The tangible
assets sold included inventory mainly consisting of Christmas tree
boxes.
Item 9. Changes in and Discussions with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers
of the Registrant
The names of the directors and executive officers of the Company
and certain information about them is set forth below:
Directors and Executive Officers
The Directors and Executive Officers of the Company, their
positions and ages are as follows:
Name Age Position
Jon F. Elliott 53 President, Chief Executive
Officer & Chairman of the
Board
Jon F. Elliott, President & Chief Executive Officer - As President of
the Company, Mr. Elliott oversees all corporate matters pertaining to the
development and operation of the Company. In addition to having a
background in Internet, television production and broadcasting and
gaming, Mr. Elliott has over 20 years of management and marketing
experience.
Mr. Elliott's employment history is as follows:
1993 to Present - Founder, President, Chief Executive Officer and
Chairman of the Board, E-Commerce West. President, Secretary and a
Director of the Company's wholly-owned subsidiaries with the exception of
N2 Networking Inc.
Chief Technology Officer
Simultaneously with its acquisition of n2.net, the Company retained
David W. Smith, President of N2 Networking, Inc., as Chief Technology
Officer for the Company and its subsidiaries. Mr. Smith has a bachelor
of science in Applied Mathematics (Engineering) and an advanced degree
in Computer Science, both from the University of Colorado. He founded
N2 Networking, Inc. in 1995 and has operated N2 Networking, Inc. until
its acquisition by the Company. Prior to 1995, he amassed over 20
years experience first as a computer programmer and later as a project
leader for companies including Boeing Aerospace and General Dynamics.
Mr. Smith has significant experience in Real-Time and Operating Systems
design and implementation and first began working on the Internet in
1981 when it was known as the ARPAnet. In addition to working on
communications protocols used to connect minicomputers to the Internet,
he wrote software permitting microcomputers to communicate with other
computers using modems. Further, he has written communications
software and protocols in use by the U.S. State Department and the U.S.
Air Force.
E-Commerce West Advisory Board
To provide guidance and insight into this new endeavor, the
Company has assembled a highly credentialed group of internet
professionals from a variety of fields to serve on its Advisory Board.
Currently serving on the Company's Advisory Board are the following
individuals:
Rich LeFurgy
In addition to acting as Director and Chairman of the Internet
Advertising Bureau and chairman of FAST Forward, another major Internet
industry group, Mr. LeFurgy is also a Director of the Advertising
Research Foundation and the Advertising Education Foundation. Called
by USA Today "the Johnny Appleseed of online advertising" and listed in
Internet World magazine's December 14, 1998 issue as one of 12
individuals who in 1998 made a difference in the Internet, Mr. LeFurgy
established one of the first online advertising sales organizations
while at Starwave Corporation. Starwave Corporation was a premiere
internet technology company which was subsequently acquired by Walt
Disney Corp. through its subsidiary Infoseek Corp. During his tenure
at Starwave, Mr. LeFurgy managed online advertising sales for the
combined Starwave and Disney organizations. Mr. LeFurgy was Executive
Vice President and a Senior Partner at NW Ayer & Partners in New York.
At Ayer, he led integrated advertising, direct and event marketing
programs for such clients as AT&T, Marriott, Folgers Instant Coffee,
Gillette Right Guard, Avon, Burger King, Ralston Purina and 7UP. Mr.
LeFurgy also serves on the Board of Directors of Lot 21 and heads the
Strategic Advisory Board of AdKnowledge. Mr. LeFurgy holds a B. S.
degree in Advertising from Syracuse University's Newhouse School.
Jon Rubinstein
Mr. Rubinstein is Sr. Vice President of Hardware Engineering at
Apple Computer, Inc. Reporting directly to the CEO, Mr. Rubinstein
leads the hardware engineering team and is responsible for the
development, industrial design and user interface for all Apple's
hardware products. Prior to joining Apple in February, 1997, Mr.
Rubinstein was Executive Vice President and COO of FirePower Systems, a
developer and manufacturer of PowerPC-based computer systems.
Previously, he held the position of Vice President and General Manager
of Hardware and VP of Hardware Engineering at NeXT. Mr. Rubinstein
also managed processor development for the Titan graphics supercomputer
family at Stardent, and helped architect the HP 9000 series 300 family
of workstations as a member of the design team for the HP 9836
workstation while also helping define the engineering and pre-
production test processes for new products while with Hewlett Packard.
A holder of several patents and published in numerous computer industry
publications, Mr. Rubinstein has a Masters and Bachelors of Science
degree in electrical engineering from Cornell University and a Masters
of Science degree in computer science from Colorado State University.
Michael Slade
Mr. Slade is an industry consultant having served as Chairman &
CEO of Starwave from 1993-1998. Starwave, a premiere Internet
technology company, created and produced the leading online sports,
news and entertainment services including ESPN.com, ABCNEWS.com and the
official sites of the NFL, NBA and NASCAR. Starwave, a majority of
which was acquired by Disney from Paul Allen, made headlines last year
when it was merged into Infoseek, and became a wholly-owned subsidiary
of Disney. Infoseek is now being branded as GO.com, a part of the
Disney Internet Group. Prior to working at Starwave, Mr. Slade served
as Director of Marketing for Microsoft from 1983 until 1990, during
which he was responsible for successfully introducing Microsoft Excel,
Microsoft's first victory over Lotus. From 1991-1992 Mr. Slade was Vice
President of Marketing for NeXT and then became Vice President of
Special Projects for Asymetrix from 1992-1993 when he assumed his role
of Chairman and CEO of Starwave. Mr. Slade has a Bachelor's degree in
Economics from Colorado College and an MBA from Stanford University's
School of Business.
As consideration for serving on the Advisory Board, each member
received options to purchase 50,000 common shares in the wholly-owned
subsidiary which is developing the Company's B2B internet application
at a purchase price of $1 each plus each member owns 50,000 restricted
common shares of the Company's stock.
Appointments and Resignations to the Board of Directors
None
Item 11. Executive Compensation
Pursuant to the Management Agreement approved and signed by
the Board of Directors, Jon Elliott, the Company's senior executive
officer was to receive an annual salary of $185,000 in the Company's
fiscal year August 1, 1999 to July 31, 2000. Officers' salary expense
for the year was $185,000 however, in an effort to preserve the Company's
cash, Mr. Elliott drew no cash for the entire year. $217,494 was paid to
Mr. Elliott in restricted stock. At the close of the fiscal year Jon
Elliott was due $12,495. Mr. Elliott was to receive $235,000 per the
terms of his employment contract for the upcoming fiscal year. However,
the Board of Directors extended Mr. Elliott's employment agreement for
three additional years while Mr. Elliott agreed to reduce his upcoming
fiscal year's salary from $235,000 to $200,000. His compensation for the
following three years will be $235,000, $275,000 and $325,000. As of
the date of this filing Mr. Elliott is owed $54,162 in deferred
compensation.
At Board Meetings held on January 5 and July 31, 2000 to
specifically strengthen the Company's balance sheet by reducing the
Company's outstanding debt to better position the Company to attract
financing, Jon Elliott, the Company's President & CEO, agreed to
exchange the money owed to him per his employment agreement, in the
amount of $101,869.50 and $115,625.10 respectively, for restricted
common shares. Mr. Elliott has not received any salary nor any
remuneration from the Company in over three years, from June 1, 1997
through July 31, 2000. His salary has been accrued. On January 5, and
July 31, 2000 the common shares of the Company had a bid price of $0.06
and $0.22. Due to the fact the shares are restricted shares pursuant
to Rule 144 of the Securities & Exchange Commission, and primarily due
to the volatility in the price of the Company's common shares, the
stock issued to Mr. Elliott was issued at a discount to the then
current bid price. Therefore 3,395,650 shares representing $101,869.50
owed and 1,051,137 representing $115,625.10 owed were issued to Mr.
Elliott.
Directors will be paid $200 for each meeting and are reimbursed for
their out-of-pocket expenses when attending meetings on behalf of the
Company. Executive Officers will not be paid any additional
consideration for attending Board Meetings. The Directors have deferred
all compensation for attending Board Meetings to date.
Stock Options
Previously, in 1989, the Company has issued a total of 170,000
options to purchase Common Stock from its initial stock option plan.
These options are non-qualified stock options. The Company is authorized
to issue up to 250,000 shares of Common Stock from this initial stock
option plan at an exercise price of $1.25 per option pursuant to
resolution of the Board of Directors and by Amendment of its Certificate
of Incorporation and/or Bylaws.
At a 1997 Board Meeting the Board added options with an expiration
date of December 31, 2003 equating to three million shares of common
stock to its Employee Stock Option Plan. In addition the expiration date
of the existing options were extended to December 31, 2003. Further, the
President was empowered to issue the options at his discretion and the
option price would be above the then current offer price of the Company's
common shares at the time of the granting of the options.
The following table sets forth the options issued by the Company on
January 7, 1989:
Number of Shares Weighted Average Expiration
Name Subject to Option Exercise Price Dates
Jon F. Elliott 170,000 $1.25 Dec. 31, 2003
These options are exercisable at any time up to December 31, 2003,
at $1.25 per share unless an individual leaves his employment or formal
association with the Company for any reason, in which case, the options
expire unless exercised within 90 days from the date the individual
resigns, is terminated or otherwise ceases to be with the Company
The following table sets forth the options issued by the Company on
July 15, 1997:
Number of Shares Weighted Average Expiration
Name Subject to Option Exercise Price Dates
Jon F. Elliott 900,000 $0.60 Dec. 31, 2003
The Board of Directors on July 15, 1997 authorized the establishment of
500,000 options, each to be exchanged on a one-for-one common stock
basis, to be offered at the discretion of the President to investors.
These options would be priced at the time granted at a price above the
then current price of the Company's shares. Further, that each option
shall be for a period established by the President at the time they are
granted. The common stock issued pursuant to all of the aforementioned
options are restricted under the Securities and Exchange Commission Rule
144.
On April 25, 2000, the Company established a qualified stock
optionplan of 5,000,000 common shares of stock primarily to attract and
act as an incentive to both management and employees. The exercise
price, vesting period, and expiration date will be determined at the
time of grant.
As part of the Employment Agreement entered into with David Smith in
conjunction with its acquisition of N2 Networking, Inc., the Company
granted David Smith options to purchase up to 450,000 common shares of
the Company at $0.50 per share. The options shall constitute "Vested
Options" at a rate equal to 12,500 options shares per month for the 36
month term of the Employment Agreement. These options would become fully
vested in the event a majority of the Company's stock was acquired by a
third party.
The common stock issued pursuant to all of the aforementioned
options are restricted under the Securities and Exchange Commission Rule
144.
Stock Options in Subsidiary Company
In March, 2000 the Board of Directors authorized the creation of a
stock option plan for the Company's wholly-owned subsidiary company
which is developing its business-to-business internet application. The
plan, established primarily to attract and incentivise management and
employees and which will be administered solely by the Company's
President/CEO, is for 20,000,000 options with each option equating,
once exercised, to one common share. The options shall be issued from
time to time to current or future employees, board members, advisory
board members or affiliates of the subsidiary Company in quantities and
at exercise prices and with a term to be set solely by the Company's
President/CEO. Initially, the Company granted 8,000,000 options with
an exercise price of $1 each which can be exercised in any quantity at
any time up to the fifth anniversary of the grant, to the Company's
President/CEO, Jon F. Elliott. Mr. Elliott has the discretion to
assign any number of these warrants to any entity at any time. Mr.
Elliott has issued each member of the Company's Advisory Board 50,000
of these options. David Smith, pursuant to an Employment Agreement
signed in tandem with the Company's acquisition of N2 Networking, Inc.,
received 1,500,000 options to be exercised according to the following
schedule: 500,000 per year for three years with an exercise price of
$1, $3 and $5 each year. These options would become fully vested in the
event a majority of the Company's stock was acquired by a third party, or
the Company was merged into another entity, or the Company filed for an
Initial Public Offering. It is anticipated that, as part of their
Employment Agreements, as new management is retained by the subsidiary
Company, they will receive options from this plan.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding the
Company's Common Stock as of July 31, 2000, not giving effect to any
stock options or Warrants outstanding as of such date, owned or recorded
beneficially by each person owning more than 5% of such Common Stock and
by all officers and directors as a group.
COMMON STOCK
Name of Number
Beneficial Owner of Shares % of Total Outstanding
Jon F. Elliott
P.O. Box 623
Deadwood, SD 9,058,114 49.92%
CEO/ President and Director
-------------------------------------------------------------------------
All Officers & Directors
as a Group 9,058,114 49.92%
Item 13. Certain Relationships and Related Transactions
The Company believes that in the past all transactions with
officers, directors and affiliates have been on terms no less favorable
to the Company than would have customarily been obtained from non-
affiliated parties, and that future transactions, if any, with officers,
directors and affiliates will likewise be subject to such standard and to
approval by a majority of the directors who have no economic interest in
the transaction.
Former Officer & Director
On March 14, 2000, the Company issued 97,333 common shares to a
former officer & director in lieu of back salary. The shares were issued
pursuant to Rule 144 of the Securities & Exchange Commission and are
restricted for one year from the date of issuance. Due to the one-year
restriction and pursuant to approval of the Board of Directors, the
shares were issued at a 50% discount to the closing bid price of $0.50
and represent $33,333.36 in back salary, less $9,000 owed by the former
officer & director in the form of a demand note to the Company. In
consideration of accepting restricted stock, the Board waived interest
due on the note. A further $636.99 owed to the former officer & director
was exchanged for title to computer equipment currently in the possession
of the former officer & director.
Officer & Director
During the year, Jon Elliott, the Company's President/CEO, sold
519,119 common shares at an average price of $0.435 on the open market.
Of that 164,000 were sold in the last fiscal quarter. A portion of the
proceeds were used to support the Company's operating overhead. All
appropriate forms concerning the aforementioned transactions were filed
in a timely fashion with the Securities & Exchange Commission.
The Company issued 4,446,787 shares of restricted common stock to
the President of the Company for compensation at prices ranging from
$0.03 to $0.11 per share.
Corporate Activities
Class "B" Warrants
At a Board of Directors meeting on January 22, 1999, the Board
extended the exercise date for the Company's Class "B" Warrants to July
26, 2000 with all other terms and conditions remaining in effect.
At a Board of Directors meeting on July 18, 2000 the Board
extended the exercise date for the company's Class "B" Warrants until
January 26, 2001 with all terms and conditions remaining in effect.
Domain Name Ownership
The Company owns, as intellectual property, over 20 Web site
addresses which are for sale.
Legal Services Fee Agreement
In June, 1999 the Company entered into an agreement with Richard
Schneider, the Company's longstanding corporate counsel whereby Mr.
Schneider will provide legal services for three years in return for
1,000,000 restricted common shares vesting at the rate of 27,777,78
shares per month throughout the term of the agreement. Mr. Schneider's
primary duties shall be to consult with respect to legal matters and
perform all services requested by the Company relating to all business
matters. This agreement conserves the Company's cash while assuring
ongoing legal representation during the Company's planned growth cycle.
Management Incentive
In 1998 the Company issued 300,000 restricted common shares to
Debra Berg. Ms. Berg was the General Manager for westerngold.com and
eChristmastrees.com and future websites which the Company planned at
the time to develop. Shares were to be earned at the rate of 100,000
shares per year with the agreement providing that a pro rata number of
shares would be returned to the Company should Ms. Berg fail to provide
services of less than three years. However, due to the financial
condition of the Company at the time, Mrs. Berg received no cash salary
from April, 1998 through to January, 2000. Management chose to reward
Mrs. Berg for her efforts, loyalty and dedication to the Company and
waived the requirement thus allowing Mrs. Berg to keep the additional
200,000 shares.
Private Placement
The Company completed a private placement of restricted stock
totaling 100,000 common shares to an existing shareholder in return for
$50,000. The proceeds were applied to general corporate purposes.
Corporate Loans
At a Board Meeting on November 16, 1998 the Board reinstated two
$9,000 loans from an Officer and a former Officer of the corporation
that had previously been offset against considerably larger
indebtedness by the Company to the two individuals. This was advised
by the Company's professionals during the previous fiscal year's annual
audit to avoid confusion. Simple interest calculated at 9% per annum
was established as the interest rate.
Jon Elliott, the Company's President/CEO has not received any cash
compensation per the terms of his Employment Agreement for the 36-month
period from June, 1997 through July, 2000.
Year 2000 Compliance
Prior to the end of 1999 the Company completed a comprehensive
review of its computer systems and determined all its computers and
related office equipment to be Year 2000 compliant. The Company
experienced one minor e-mail malfunction, which was not necessarily a
Y2K issue, which was quickly rectified with no loss of sales nor
information. The Company marketed products from several third party
suppliers on its Internet retail websites. The Company did not
experienced any problems with any of its suppliers relative to Y2K
issues.
Subsequent Events
Sale of eChristmastrees.com
The Company sold its eChristmastrees.com business, including the
web site, all relevant domain names, inventory, customer lists,
affiliates, merchant affiliations and suppliers to WWW Services, the
Company's former web design firm. Consideration for the purchase
included $16,303.45 representing a 50% discount of the fees owed to WWW
Services for web site design services. WWW Services is owned by Deb
Berg, the Company's former General Manager. Additional consideration
included Mrs. Berg forgiving $49,583.28 in back salary owed by the
Company for a period including April, 1998 through December, 1999.
Stock Issuances
After the end of the fiscal year but prior to this filing, the
Company issued 45,000 common shares for Internet security services
valued at $8,740 and 5,000 for Internet technology services valued at
$900 in connection with the development of its business-to-business
internet application from its active S-8 Registration #333-37710.
Other Matters
From the end of the fiscal year but prior to this filing Jon
Elliott, the Company's President/CEO, sold 155,200 shares at an average
price of $0.18 on the open market. All appropriate forms concerning the
aforementioned transactions were filed in a timely fashion with the
Securities & Exchange Commission.
PART IV
Item 14. Financial Statements, Schedules
Exhibits and Reports on Form 8-K
(1) Financial Statements
(a) The Financial Statements required pursuant to this Item have been
filed as part of this report under Part II, Item 8.
All other schedules have been omitted because the information
prescribed therein is not applicable, not required, or is furnished in
the financial statements or notes thereto.
(2) Exhibits
Exhibit No. Description Page No.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
Exhibits other than those listed have been omitted because they are
nonexistent, inapplicable or because the information is given in the
financial statements of the Company.
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of The Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, this
25th day of October, 2000
E-COMMERCE WEST CORP.
By /s/ Jon F. Elliott___
Jon F. Elliott
President and Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that such person whose signature
appears below constitutes and appoints Jon F. Elliott, his-attorney-in-
fact, with power of substitution, for him in any and all capacities, to
sign this Annual Report on Form 10-K, and any amendments thereto, each
with exhibits thereto, and other documents in connection therewith, with
The Securities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact, or his substitute may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Jon F. Elliott President, October 30 , 2000
Jon F. Elliott Chief Executive Officer,
Chairman of the Board
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report, dated
October 20, 2000 (which includes an emphasis paragraph relating to an
uncertainly as to the Company's ability to continue as a going concern)
on the consolidated financial statements of E-Commerce West Corp. and
subsidiaries included in this Form 10-KSB in the previously filed
Registration Statements of E-Commerce West Corp. on Form S-8 (File No.
33-34786, effective May 31, 1996, File No. 333-32415, effective August 5,
1997, File No. 333-59975, effective August 21, 1998 and File No. 333-
37710, effective May 24, 2000).
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 30, 2000
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
20
The accompanying notes are an integral part of these financial statements.
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The accompanying notes are an integral part of these financial statements.
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