UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ______________.
Commission File Number 33-16031
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FRONT PORCH DIGITAL INC.
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(Name of small business issuer as specified in its charter)
Nevada 86-0793960
------------------------------------ ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1810 Chapel Avenue West, Suite 130
Cherry Hill, NJ 08002
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(Address of principal executive offices)
856-663-3500
--------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 2000, 19,510,768 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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FRONT PORCH DIGITAL INC.
FORM 10-QSB
INDEX
PAGE
PART I. Financial Information 3
Item 1. Financial Statements:
Balance Sheets - September 30, 2000 and December 31, 1999 3
Statements of Operations - Three and Nine Months ended
September 30, 2000 and 1999 4
Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 5
Statement of Stockholders' Equity - December 31, 1999 and
September 30, 2000 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II. Other Information: 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters To A Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS -
FRONT PORCH
DIGITAL INC.
BALANCE
Sheet
(Unaudited)
Sept. 30, 2000 Dec. 31, 1999
[Predecessor
[Unaudited] company]
---------- --------
Assets
Current assets
Cash $156,792 $ 14,483
Accounts receivable 4,075 0
Interest receivable 77,429 0
Inventory 2,876 0
---------- --------
Total current assets 241,172 14,483
---------- --------
Property & equipment, Net 233,576 0
Investment in Visionary Systems, at cost 300,000 0
Other assets 93,176 0
-------- --------
Total assets $867,924 $ 14,483
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Bridge note payable, net of discount $781,795 $ 0
Accounts payable 125,276 5,075
Accrued expenses 608,854 0
---------- --------
Total current liabilities 1,515,925 5,075
Stockholders' equity (deficit)
Preferred stock, nonvoting, $.001 par value,
5,000,000 shares authorized, none
issued or outstanding; common stock,
$.001 par value, 50,000,000 shares
authorized, 19,510,768 shares issued
and outstanding for 2000; 23,200,000
shares issued and outstanding
for 1999 19,511 23,200
Additional paid in capital 10,569,293 102,800
Subscriptions receivable (7,592,090) 0
Accumulated deficit (3,644,715) (116,592)
---------- --------
Total stockholders' equity (deficit) (648,001) 9,408
---------- --------
Total liabilities and stockholders'
equity (deficit) $867,924 $ 14,483
======== ========
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FRONT PORCH DIGITAL INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine For the Three For the Nine
Months Ended Months Ended Months Ended Months Ended
------------ ------------ ------------ ------------
9/30/2000 9/30/2000 9/30/1999 9/30/1999
------------ ------------ ------------ ------------
[predecessor company]
----------------------------
<S> <C> <C> <C> <C>
Revenues $ 3,224 $ 56,681 $ 0 $ 0
Cost of revenue 200 25,208 0 0
------------ ------------ ------------ ------------
Gross margin 3,024 31,473 0 0
------------ ------------ ------------ ------------
Operating expenses
Sales & marketing 11,283 67,729 0 0
General & administrative 348,704 1,442,979 953 8,306
Consulting fees (Note 8) 1,928,724 1,928,724
------------ ------------ ------------ ------------
2,288,711 3,439,432 953 8,306
------------ ------------ ------------ ------------
Loss from operations (2,285,687) (3,407,959) (953) (8,306)
Other income (expense)
Interest income 77,429 77,429 70 70
Interest expense (50,795) (69,170) 0 0
Other expense (Note 7) (245,015) (245,015) 0 0
------------ ------------ ------------ ------------
(218,381) (236,756) 70 70
------------ ------------ ------------ ------------
Net loss (2,504,068) (3,644,715) (883) (8,236)
============ ============ ============ ============
Weighted average number of
Common shares outstanding-basic
and diluted 18,243,762 16,817,959 23,200,000 23,200,000
Loss per common share-basic and diluted (0.14) (0.22) (0.00) (0.00)
</TABLE>
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FRONT PORCH DIGITAL INC.
Statement of Cash Flows
For the Nine Months Ended
(Unaudited)
Sept. 30, 2000 Sept. 30, 1999
----------- -----------
Cash flows from operating activities
Net loss $(3,644,715) $ (8,236)
Depreciation and amortization 61,813 0
Non cash issuance of common stock 1,928,724 0
Stock option compensation cost 33,150 0
Adjustments to reconcile net loss
to net cash used in operating activities
Changes in operating assets and liabilities
Increase in accounts receivable (4,075) (3,587)
Increase in interest receivable (77,429) 0
Increase in inventory (2,876) 0
Increase in accounts payable 120,201 2,930
Increase in accrued expenses 608,854 0
Other (3,008) 0
----------- -----------
Net cash used in operating activities (979,361) (8,893)
----------- -----------
Cash flows from investing activities
Capital expenditures (262,594) 0
Capitalization of acquisition related costs (93,176) 0
Investment in Visionary Systems (300,000) 0
----------- -----------
Net cash used in investing activities (655,770) 0
----------- -----------
Cash flows from financing activities
Bridge loan proceeds 800,000 0
Proceeds from issuance of common stock 977,440 20,000
----------- -----------
Net cash provided by financing activities 1,777,440 20,000
----------- -----------
Net increase in cash 142,309 11,107
Cash, beginning of period 14,483 0
----------- -----------
Cash, end of period $ 156,792 $ 11,107
=========== ===========
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FRONT PORCH DIGITAL INC.
Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Subscription Accumulated Stockholders'
Shares Amount Paid-in Capital Receivable Deficit Equity
---------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 46,400,000 $ 23,200 $ 102,800 $ -- $ (116,592) $ 9,408
Stock option compensation costs $ 33,150 $ 33,150
Recapitalization of
Front Porch Digital, Inc. (40,000,000) $ (16,800) $ (102,800) $ 116,592 $ (3,008)
Issue shares to Front Porch
Digital shareholders for merger 9,440,000 $ 9,440 $ (9,240) $ 200
Other, debt discount $ 51,000 $ 51,000
Common stock issued for cash
at $2.00 per share 487,500 $ 488 $ 974,512 $ 975,000
Stock subscriptions paid $ 2,240 $ 2,240
Contributed shares from Front
Porch Digital shareholders for
capital restructuring (1,573,639) $ (1,574) $ 1,574 $ --
Investment of Equity Pier 4,756,907 $ 4,757 $ 9,509,057 $(7,585,090) $ 1,928,724
Net loss $(3,644,715) $(3,644,715)
----------------------------------------------------------------------------------------
Balance, September 30, 2000 19,510,768 $ 19,511 $ 10,569,293 $(7,592,090) $(3,644,715) $ (648,001)
========================================================================================
</TABLE>
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FRONT PORCH DIGITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note 1 - The Business
Front Porch Digital Inc., formerly Empire Communications, Inc. (the
"Company"), is a broadband digital media solutions provider that offers services
that facilitate the distribution of digital content over a variety of delivery
mechanisms, including Internet streaming, digital cable, Digital Versatile Disc
(DVD) and digital television. The Company's proprietary production process
automates the pre-mastering and programming of broadband video and audio
content. Using a software-based production model that decouples the processes of
capture, compression, archiving and streaming, the Company is able to offer
adaptable yet cost-effective, full-featured digital media services.
On October 11, 2000 the company acquired the Media Services operations of
Storage Technology Corporation ("StorageTek"), which has over ten years
experience in performing conversions and migrations of legacy analog data, such
as text, documents, microfiche and images, to digitized data on tape and disk.
The Company believes the services offered by the media services group are unique
in that they may be successfully delivered at the customer's site using a proven
process and methodology that results in virtually no impact to the customer's
day-to-day operations or CPU processing overhead. These services may also be
performed at one of the company's secure facilities.
Note 2 - Basis of Presentation
In May 2000, the Company and its current subsidiary, Front Porch
Digital, Inc., a Delaware corporation ("Front Porch"), executed an Agreement and
Plan of Reorganization (the "Plan"), whereby the Company acquired 100% of the
outstanding equity securities of Front Porch from its stockholders (the "Front
Porch Stockholders"). The Plan provided for the acquisition of 100% of the
outstanding equity securities of Front Porch; the issuance and exchange of
9,440,000 shares of the Company's common stock for the outstanding common stock
of Front Porch, which shares of common stock of the Company were "restricted
securities" under the Securities Act of 1933, as amended; the contribution of
40,000,000 shares of common stock of the Company owned by Susan M. Grant to the
treasury of the Company; and the issuance and exchange of warrants to acquire
7,400,000 shares of the common stock of the Company for the then-outstanding
warrants to acquire 7,400,000 shares of the common stock of Front Porch.
This transaction is commonly referred to as a "reverse acquisition"
where 100% of Front Porch's stock was effectively exchanged for a controlling
interest in a publicly-held "shell" corporation (which concurrently changed its
name to Front Porch Digital, Inc.). For financial accounting purposes, this
transaction has been treated as the issuance of stock for the net monetary
assets of the Company, accompanied by a recapitalization of Front Porch, with no
goodwill or other intangible assets recorded.
Front Porch was formed on February 1, 2000, and therefore the historical
operating results prior to that date are those of Empire Communications, Inc.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Management of the Company believes that the disclosures
are adequate to make the
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information presented not misleading. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 2000 are not necessarily indicative of the
operating results expected for the year ending December 31, 2000.
Note 3 - Going Concern Uncertainty
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern that contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company commenced operations in its current line of
business on May 2, 2000, and has not had significant revenues. To date, the
Company has been able to cover operating costs with existing financial resources
from bridge loans and proceeds from the sale of its common stock.
Note 4 - Related Party Transactions
The Company leases computer equipment and office space on a month-to-month
basis from an entity formerly under common control with the Company. Rent
expense on these leases was $170,998 during the nine months ended September 30,
2000.
The Armand Group, a Chicago-based investment banking firm, has been
retained to provide financial consulting and investment banking advisory
services to the Company, including providing the services of a member of The
Armand Group as the Company's interim Chief Financial Officer. Under the terms
of this agreement, the Armand Group receives monthly consulting fees,
reimbursement of all direct expenses associated with its services and, in
connection with the recently-completed transaction between the Company and
StorageTek, an investment banking advisory fee. Through September 30, 2000, the
Armand Group has received $ 35,000 in fees and $17,000 in expense reimbursements
from the Company. Additionally, subsequent to September 30, 2000, based upon the
closing of the Media Services acquisition from StorageTek, the Armand Group
received an additional $200,000 in investment banking success fees. A partner of
the Armand Group, who is also a shareholder of the Company, has continued
serving in the capacity of interim Chief Financial Officer of the Company
following the acquisition of the Media Services operations.
Note 5 - Bridge Loans
At September 30, 2000 the Company had $800,000 of unsecured notes payable.
These notes bear interest at 9% and are payable on demand. Subsequent to
September 30, 2000, the Company repaid $600,000 of the principle amount of the
notes.
Note 6 - Warrants
In connection with the issuance of the notes payable (Note 5), the Company
issued warrants that enable the lenders to purchase an aggregate of 800,000
shares of common stock of the Company for a purchase price of $1.00 per share.
These warrants expire on December 31, 2005.
In connection with the Plan (Note 2), on May 2, 2000, the Company issued
warrants in exchange for identical fully-vested outstanding warrants of Front
Porch, which enable the holders to:
o purchase an aggregate of 6,000,000 shares of common stock of the Company at
an exercise price of $0.50 per share. These warrants expire May 2, 2005 and
become exercisable on February 1, 2001;
o purchase an aggregate of 920,000 shares of common stock of the Company at
an exercise price
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of $0.50 per share. These warrants become exercisable in three equal annual
installments commencing on February 1, 2001 and expire on February 1, 2005.
In connection with a capital restructuring of the Company (Note 9),
warrants expiring May 2, 2005 to purchase an aggregate of 3,000,000 shares and
warrants expiring on February 1, 2005 to purchase an aggregate of 1,573,639
shares have been forfeited.
Note 7 - Termination of Proposed Acquisition
In the February 2000 the Company had reached an agreement in principle to
acquire the outstanding shares of capital stock of Formal Systems America Inc.
("FSAI"), a corporation formerly engaged in the software re-engineering
business. The acquisition will, among other benefits, give the company access to
FSAI's Sun MicroSystems E-6000 server.
The Company subsequently terminated the proposed acquisition of FSAI and,
as a result no shares of common stock were issued by the Company for such
purpose. Under the termination, however, the Company agreed to pay a break up
fee and legal expenses, aggregating $245,000, which are included in other
expenses. The Company also agreed to continue to lease FSAI's Sun Microsystems
E-6000 server and FSAI's facilities in Cherry Hill, New Jersey on a
month-to-month basis. (Note 4)
Note 8 - Investment of Equity Pier LLC
Effective August 1, 2000, the Company issued to Equity Pier LLC, a Colorado
limited liability company ("Equity Pier"), 4,756,907 shares of common stock for
a purchase price of $2.00 per share (the "Equity Pier Share Purchase"). Of such
shares, 964,362 shares were issued in consideration of certain consulting
services previously rendered by Equity Pier to the Company, which were charged
to selling general and administrative services in the period. And an additional
3,792,545 shares were issued in consideration of a cash payment of $3,793 and a
promissory note of Equity Pier in the principal amount of $7,581,297 (the
"Promissory Note"). The Promissory Note bears interest at the rate of 6.33% per
annum, is payable in 14 equal quarterly installments of $607,978 and is secured
by a pledge of 3,792,545 shares of common stock of the Company. Equity Pier was
also granted certain rights for the registration of its shares of common stock
of the Company under the Securities Act of 1933, as amended.
Concurrent with such purchase and sale, the Company entered into a
consulting agreement with Equity Pier pursuant to which Equity Pier has agreed
to render certain consulting services to the Company for the 36-month period
commencing January 1, 2001 in consideration of monthly payments by the Company
of $236,000 (the "Equity Pier Consulting Agreement"). The terms of the
consulting agreement was subsequently amended to commence on October 1, 2000 and
terminate on June 30, 2004 and to reduce the monthly payments by the Company
from $236,000 to $204,000 per month (Note 10).
Note 9 - Capital Restructuring.
In connection with the investment by Equity Pier in the Company, certain
founding shareholders of Front Porch agreed to restructure the capital of the
Company by contributing shares of common stock to the Company or forfeiting
certain options or warrants to purchase shares of common stock. An aggregate of
1,573,639 shares of common stock were contributed to the Company and options or
warrants to purchase an aggregate of 6,070,000 shares of common stock were
forfeited. In addition, Donald Maggi, a director of the Company, agreed to
forfeit warrants to purchase 150,000 shares of common stock.
9
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Note 10 - Subsequent Events
On October 10, 2000, the Company acquired the net assets of the media
services operations (the "Business") of StorageTek pursuant to an Asset Purchase
Agreement dated as of October 10, 2000 (the "Asset Purchase Agreement"), between
the Company and StorageTek. The consideration paid by the Company pursuant to
the Asset Purchase Agreement consisted of (a) $153,915 in cash (obtained from
the net proceeds of a recently-completed private placement of the Company's
common stock), and (b) 6,088,636 shares of common stock of the Company. In
connection with the acquisition, the Company assumed certain liabilities and
obligations of StorageTek relating to the Business, including certain royalty
payments payable to Dr. Giancarlo Gaggero (the Company's Senior Vice President
of Media Technologies) pursuant to the terms of an asset purchase agreement
dated as of December 2, 1998 between StorageTek and Data Strategies
International, Inc.
Pursuant to the terms of the Asset Purchase Agreement, the Company acquired
substantially all of the assets used in the operation of the Business, exclusive
of certain assets of StorageTek not solely related to the Business. The acquired
assets include the following: o Tangible assets, including machinery and
equipment, computer hardware, leasehold improvements and other improvements;
o Intellectual property;
o Customer lists;
o Subsisting contracts with customers; and
o All revenues allocable to the Business and recognizable by StorageTek under
accrual-based accounting procedures from July 1, 2000 to the closing date
and allocable to work performed by StorageTek after June 30, 2000,
exclusive of revenues generated prior to the closing date in respect of one
identified project.
In conjunction with the acquisition, the commencement date of the Equity
Pier Consulting Agreement was accelerated from January 1, 2001 to October 1,
2000 to coincide with the consummation of the acquisition, and the term of such
agreement was extended by an additional six months, to June 30, 2004. The
monthly payments by the Company under the Equity Pier Consulting Agreement were
also renegotiated downward from $236,000 per month to $204,000 per month.
In addition, in connection with the acquisition, certain shareholders of
the Company granted the Company an option to purchase an aggregate of 1,450,000
shares of common stock of the Company for a purchase price of $1.50 per share,
and the Company granted to such shareholders the right under certain
circumstances to put such shares to the Company for purchase at a price of $1.50
per share.
In October 2000, the Company completed a private placement of 118.032
units, each unit consisting of 25,000 shares of common stock, and received from
such offering aggregate net proceeds of $5,605,940 after deducting placement
agent commissions of $295,660. A portion of the net proceeds from such offering
was applied to the cash portion of the purchase price for the acquisition of the
Business. The balance of the net proceeds from such offering will be used for
research and development expenses, sales and marketing expenses, the purchase of
equipment and for working capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
When used in this discussion, the words "believes", "anticipates",
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected.
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The Company's business and results of operations are affected by a wide
variety of factors that could materially and adversely affect the Company and
its actual results, including, but not limited to, the ability of the Company to
provide services and to complete the development of its products in a timely
manner, the demand for and the timing of demand for such services and products,
competition from other products and companies, the Company's sales and marketing
capabilities, the Company's ability to sell its services and products
profitably, availability of adequate debt and equity financing, and general
business and economic conditions. As a result of these and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis, which could materially and adversely affect its
business, financial condition, operating results and stock price.
These forward-looking statements speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Reverse Acquisition
In May 2000, the Company and Front Porch executed the Plan, whereby the
Company acquired 100% of the outstanding equity securities of Front Porch from
the Front Porch Stockholders. The Plan provided for the acquisition of 100% of
the outstanding equity securities of Front Porch; the issuance and exchange of
9,440,000 shares of the Company's common stock for the outstanding common stock
of Front Porch, which shares of common stock of the Company were "restricted
securities" under the Securities Act of 1933, as amended; the contribution of
40,000,000 shares of common stock of the Company owned by Susan M. Grant to the
treasury of the Company; and the issuance and exchange of warrants to acquire
7,400,000 shares of the common stock of the Company for the then-outstanding
warrants to acquire 7,400,000 shares of the common stock of Front Porch.
This transaction is commonly referred to as a "reverse acquisition" in
which 100% of Front Porch's stock was effectively exchanged for a controlling
interest in a publicly-held "shell" corporation (which concurrently changed its
name to Front Porch Digital, Inc.). For financial accounting purposes, this
transaction was treated as the issuance of stock for the net monetary assets of
the Company, accompanied by a recapitalization of Front Porch, with no goodwill
or other intangible assets recorded.
Plan of Operation; Developing of Media
The Company's plan of operation for the next 12 months is to establish
itself as a leading service provider in the emerging market for the conversion
and formatting of text, images, audio, graphics and video from any format to any
other format, for access via any digital platform including broadband, Internet,
DVD and HDTV.
As a result of its acquisition of the Media Services operations from
StorageTek, the Company also seeks to capitalize on its status as the only
provider of onsite, offline information migration services to Fortune Global 500
companies that need to migrate tape and optical assets from old to new formats.
The Company believes it offers a unique, comprehensive suite of software,
products and services that enables the Company to migrate information from
`anything' to `anything' at a customer's site with no adverse impact to the
customer's business operations.
The Company intends to continue to develop or acquire the expertise and
technology necessary to provide onsite services that enable clients to migrate
from any media type or data format to any other media type or data format, with
virtually no impact to production processing. The Company is also developing new
and more efficient algorithms and processes for the extraction, conversion,
migration and storage of massive quantities of information.
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RESULTS OF OPERATIONS
Prior to the consummation of the Plan, the Company conducted no significant
business operations. As a result, the Company believes a comparison of results
of operations for the three- and nine-month periods ended September 30, 2000 to
the comparable periods of fiscal 1999 is not meaningful. The following
information includes the results of operations of Front Porch for all periods
prior to May 2, 2000.
For the Three and Nine Months Ended September 30, 2000
REVENUES. Total revenues significantly declined for the three months ended
September 30, 2000 as compared to the second quarter of 2000. The decrease in
revenues resulted from the Company's focus on the completion of the acquisition
of the Media Services operations of StorageTek.
COST OF REVENUES. Cost of revenues consists primarily of consumables
directly related to the generation of revenue, but does not include the cost of
salaries, facilities or equipment. Total cost of revenues decreased by
approximately 99% for the three months ended September 30, 2000 as compared to
the second quarter of fiscal 2000. This decrease was due to the decrease in
revenues. The Company plans to significantly increase its revenue-generating
capacity, and therefore expects expenses in this category to increase
significantly.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions, travel, trade show expenses, advertising and
the production of marketing collateral. Sales and marketing expenses decreased
by approximately 70% for the three months ended September 30, 2000 as compared
to the second quarter of fiscal 2000. The decrease was primarily due to a
reduction in travel and the termination of a contract employee. The Company
plans to significantly increase its sales and marketing efforts, and therefore
expects expenses in this category to increase significantly.
GENERAL & ADMINISTRATIVE AND CONSULTING. General and administrative
expenses consist primarily of all other salaries, employee benefits, insurance,
voice and data communications, equipment leases, non-sales travel and
entertainment, accounting, legal, shareholder relations and office supplies. All
overhead expenses are currently reported under this category. General and
administrative expenses increased by approximately 508% for the three months
ended September 30, 2000 as compared to the second quarter of fiscal 2000. The
increase was primarily due to the costs associated with consulting services
provided by Equity Pier LLC, which was offset in part by a decrease of $95,000
in legal and accounting expenses.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Prior to the consummation of the Plan on May 2, 2000, the Company had no
operations and had nominal assets and liabilities. As a result, for the
nine-month period ended September 30, 1999, the Company incurred nominal general
and administrative expenses totaling $8,306 for shareholder costs, and legal and
accounting fees.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 2000, the Company's principal commitments consisted
primarily of notes payable totaling approximately $800,000, of which notes in
the aggregate principal amount of $600,000 were subsequently repaid. These notes
bear interest at 9% per annum and are unsecured. The principal and interest on
the remaining $200,000 principal amount of notes is payable on demand.
Since consummation of the Plan, the Company has significantly increased its
operating expenses. The Company currently anticipates that it will continue to
experience significant growth in its operating expenses for the foreseeable
future and that its operating expenses will be a material use of its cash
resources.
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In October 2000, the Company completed an offering of 118.032 units, at a
purchase price of $50,000 per unit, each unit consisting of 25,000 shares of the
Company's common stock. This private placement has financed the recent
operations of the Company. Net cash used in operating activities was $993,951 in
the nine-month period ended September 30, 2000.
The Company believes it's existing cash and cash equivalents will be
sufficient to meet the Company's working capital and capital expenditure
requirements for at least the next 12 months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From May 9, 2000 to October 10, 2000, the Company sold to 77 accredited
investors an aggregate of 2,950,800 shares of the Company's unregistered common
stock at $2.00 per share. The Company intends to use the net proceeds from this
private placement primarily for sales and marketing expenses; research and
development; the purchase of equipment; repayment of bridge loan indebtedness;
and working capital and general corporate purposes. Such transaction was
effected pursuant to Rule 506 under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
Exhibit Number Description
10.1 Amended and Restated Consulting Agreement dated as of November 13,
2000 between the Company and Equity Pier, LLC.
10.2 Employment Agreement dated as of October 30, 2000 between the Company
and Saheed Karim.
10.3 Employment Agreement dated as of October 30, 2000 between the Company
and Kenneth Beaudry.
27 Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K dated October 10, 2000
providing information with respect to the acquisition by the Company of the
Media Services operations of Storage Technology Corporation.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 14, 2000 FRONT PORCH DIGITAL INC.
By: /s/Jean Reiczyk
----------------------------
Jean Reiczyk
Chief Executive Officer
By: /s/Timothy Petry
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Timothy Petry
Chief Financial Officer
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