<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/x/ Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for Quarterly Period Ended June 30, 2000
-OR-
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transaction period from ___________ to _________
Commission File Number 333-70663
Spinrocket.com, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1529524
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
29 West 57th Street, 9th Floor, New York, New York 10019
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(Address of principal executive offices, Zip Code)
(212) 583-0300
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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.
Yes /X/ No / /
The number of outstanding shares of the registrant's common stock,
par value $.001 as of July 31, 2000 is 21,512,624
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited)....................................................
Consolidated Balance Sheets .............................................3
Consolidated Income Statements...........................................4
Consolidated Statements of Cash Flows....................................6
Consolidated Statement of Shareholders' Equity...........................7
Notes To Consolidated Financial Statements ..............................8
Item 2. Management's Discussion and Analysis..............................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................12
Item 2. Changes in Securities and Use of Proceeds.........................................12
Item 3. Defaults Upon Senior Securities...................................................12
Item 4. Submission of Matters to a Vote of Security Holders...............................12
Item 5. Other Information ..............................................................13
Item 6. Exhibits and Reports on Form 8-K..................................................13
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTSPINROCKET.COM, INC.CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,948,994 $ 556,799
Account receivable 65,175 --
Other account receivable 75,000 --
Prepaid expense 44,480 23,511
------------ ------------
Total Current Assets 3,133,649 580,310
EQUIPMENT:
Equipment, net of accumulated depreciation of $1,110 and $2,222 5,541 18,072
OTHER ASSETS:
Cost of acquired software, net of accumulated amortization
of $560,000 and $130,318 (Note 4) 3,640,000 3,779,228
Other assets 18,850 15,239
Assets of discontinued operations (Note 2) -- 7,616,940
Goodwill, net of accumulated amortization of $69,900 in 2000 629,100 583,000
------------ ------------
Total Other Assets 4,287,950 11,994,407
------------ ------------
Total Assets $ 7,427,140 $ 12,592,789
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 165,561 $ 291,318
Liabilities of discontinued operations (Note 2) -- 6,229,969
------------ ------------
Total Current Liabilities 165,561 6,521,287
------------ ------------
SHAREHOLDERS' EQUITY (Note 5):
Preferred Stock, $.001 par value
10,000,000 shares authorized, Series D -- --
Common Stock, $.001 per value
40,000,000 shares authorized, 21,512,624 and 18,081,650 issued
and outstanding 21,513 18,082
Paid in capital 18,465,721 13,572,426
Deferred compensation (829,789) (583,539)
Accumulated deficit (10,395,866) (6,935,467)
------------ ------------
Total Shareholders' Equity 7,261,579 6,071,502
------------ ------------
Total Liabilities and Shareholders' Equity $ 7,427,140 $ 12,592,789
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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SPINROCKET.COM, INC.
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 2000 1999
--------------------------------- ------------ ------------
(Note 2)
<S> <C> <C>
Revenue:
Consulting fees $ 60,000 $ --
General and administrative expenses 2,256,121 --
------------ ------------
Operating loss (2,196,121) --
Interest income 32,422 --
------------ ------------
Loss from continuing operations before income
tax benefit (2,163,699) --
Income tax benefit 116,000 --
------------ ------------
Loss from continuing operations (2,047,699) --
Loss from discontinued operations,
after income taxes ($0) (Note 2) (1,412,700) (127,220)
------------ ------------
Net loss $ (3,460,399) $ (127,220)
============ ============
Net loss per common share-basic and diluted:
Loss from continuing operations $ (.11) $ --
Loss from discontinued operations $ (.07) (.03)
------------ ------------
Net loss per common share-basic and diluted $ (.18) $ (.03)
============ ============
Weighted average shares outstanding:
basic and diluted 19,640,441 3,890,756
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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SPINROCKET.COM, INC.
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 2000 1999
----------------------------------- ------------ ------------
(Note 2)
<S> <C> <C>
Revenue:
Consulting fees $ 60,000 $ --
General and administrative expenses 1,353,415 --
------------ ------------
Operating loss (1,293,415) --
Interest income 32,422 --
------------ ------------
Loss from continuing operations before income
tax benefit (1,260,993) --
Income tax benefit -- --
------------ ------------
Loss from continuing operations (1,260,993) --
Loss from discontinued operations,
after income taxes ($0) (Note 2) (1,054,993) 226,034
------------ ------------
Net loss $ (2,315,986) $ 226,034
============ ============
Net loss per common share- basic and diluted:
Loss from continuing operations $ (.06) $ --
Loss from discontinued operations (.05) .06
------------ ------------
Net loss per common share- basic and diluted $ (.11) $ .06
============ ============
Weighted average shares outstanding:
basic and diluted 21,215,585 3,890,756
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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SPINROCKET.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 2000 1999
--------------------------------- ----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,460,399) $ (127,220)
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation 1,791
Amortization 499,582
Loss on disposal of equipment 10,740
Non-cash compensation expense 722,236
Income tax benefit (116,000)
Loss from discontinued operations 1,412,700 127,220
(Increase) in receivables (140,175)
(Increase) in prepaid and other assets (20,969)
(Increase) in non-current assets (3,611)
(Decrease) in payables and other current liabilities (164,850)
----------- -----------
Total adjustments to net income 2,201,444 127,220
----------- -----------
Net cash (used) by operating activities (1,258,955) --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of equipment 13,643
(Increase) in non-current assets (3,611)
----------- -----------
Net cash provided by investing activities 10,032 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from Private Placement
(net of issuance costs) 3,641,118 --
----------- -----------
Net increase in cash and cash equivalents 2,392,195 --
CASH AND CASH EQUIVALENTS, January 1, 556,799 --
----------- -----------
CASH AND CASH EQUIVALENTS, JUNE 30, $ 2,948,994 $ --
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of Preferred to Common Stock $ 2,997,737
===========
Fair value of warrants to purchase Common Stock
issued in conjunction with Private Placement $ 9,475,300
===========
Fair value of warrants issued to Placement Agent $ 1,112,876
===========
Increase in cost of acquired software $ 290,454
===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
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SPINROCKET.COM, INC.
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Total
Preferred Common Paid in Deferred Accumulated Shareholders'
Six months ended June 30, 2000 Stock Stock Capital Compensation Deficit Equity
------------------------------ ---------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ -- $ 18,082 $ 13,572,426 $ (583,539) $ (6,935,467) $ 6,071,502
Adjustment of cost of acquired
software (Note 4) 290,454 290,454
Issuance of 121,494 shares with
respect to 1999 business combination
of Spinrocket and Cakewalk LLC as
an adjustment to purchase price 122 (122) --
Placement fee paid with respect to
1999 business combination
of Spinrocket and Cakewalk LLC (90,000) (90,000)
Issuance of 2,661,352 shares of
Series D Preferred Stock in
Private Placement (Note 5) 2,661 2,995,076 2,997,737
Issuance of 648,128 shares of
Common Stock in Private
Placement (Note 5) 648 729,400 730,048
Conversion of shares of preferred
stock to common stock (2,661) 2,661 --
Issuance of options for consulting
services 388,237 388,237
Issuance of stock options to an officer 580,250 (580,250) --
Amortization of deferred compensation 334,000 334,000
Net loss (3,460,399) (3,460,399)
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BALANCE, June 30, 2000 $ -- $ 21,513 $ 18,465,721 $ (829,789) $(10,395,866) $ 7,261,579
========================================================================================
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
7
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SPINROCKET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
1. As used in these financial statements, the term the "Company" refers to
Spinrocket.com, Inc. (formerly known as CDBeat.com, Inc.) and its
consolidated subsidiaries.
2. The December 31, 1999 consolidated balance sheet presented herein was
derived from the audited December 31, 1999 consolidated financial statements
of the Company. Reference should be made to the Company's consolidated
financial statements for the year ended December 31, 1999 for a description
of the accounting policies, which have been continued without change. Also,
reference should be made to the notes to the Company's December 31, 1999
consolidated financial statements for additional details of the Company's
consolidated financial condition, results of operations and cash flows. The
details in those notes have not changed except as a result of normal
transactions in the interim. Certain amounts in the 1999 consolidated
financial statements have been reclassified to conform with the current
period's presentation. All adjustments (of a normal recurring nature) which
are, in the opinion of management, necessary to a fair presentation of the
results of the interim period have been included.
As previously disclosed in the Company's December 31, 1999 Form 10-KSB, on
March 30, 2000, the Company decided that it will exit the business conducted
by 32 Records by March 2001 and recharacterized 32 Records as a discontinued
operation for financial reporting purposes. Since March 30, 32 Records has
been operating the business and has sought to sell the business or assets.
Unless the Company can facilitate a sale in the near future, which it is
attempting to do, it anticipates that the business will be surrendered,
either through the transfer of assets or equity ownership, to the lender.
Consequently, the Company has written-off the business of 32 Records in
its consolidated financial statements as of June 30, 2000.
3. The Company's Board of Directors has approved a proposal to amend the
Company's Certificate of Incorporation, such that the corporate name of the
Company will change from "Spinrocket.com, Inc." to "ConnectivCorp." The
Company has determined to change its corporate name because this new name
better describes the Company's current strategic direction. The Company's
business model is to facilitate the online connection between targeted,
profiled consumers, on the one hand, and marketers desiring to reach those
consumers, on the other hand. As its initial focus, the Company has
determined to form a new wholly-owned subsidiary, ConnectivHealth, in
order to facilitate its connectivity model in the healthcare field. The
corporate name change will become effective upon the filing of the Amended
Certificate with the Delaware Secretary of State, which the Company
anticipates will be on or about September 7, 2000.
4. As previously reported in the Company's December 31, 1999 Form 10-KSB, the
Company completed a business combination in November 1999 with Cakewalk LLC
in a transaction accounted for by the purchase method wherein Cakewalk LLC
was deemed to be the acquiror and Spinrocket the acquiree. A portion of the
purchase price had been allocated to assets acquired and liabilities assumed
based on the estimated fair market value at the date of acquisition and the
balance of $3,909,546 was recorded as cost of acquired software. The
allocation of the $3,909,546 to acquired software was preliminary and
subject to the completion of an independent valuation. The results of the
completed valuation, which valued the acquired software at $4.2 million,
have been reported in the consolidated financial statements and the software
is being amortized using the straight-line method over its estimated useful
life of five years.
5. On March 31, 2000, the Company raised approximately $3 million (net of
Placement Agent fees) through the private placement of 2,661,352 shares of
the Company's Series D Convertible Preferred Stock (the "Series D Preferred
Stock") at a price of $1.28 per share. On April 19, 2000, the Company
converted the Series D Preferred Stock into shares of Common Stock at a
ratio of one share of Common Stock for one share of Series D Preferred
8
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Stock and amended its charter to authorize the issuance of up to 40 million
shares of Common Stock. At the second closing on April 28, 2000, the Company
received approximately $.8 million (net of Placement Agent fees) and issued
648,128 shares of Common Stock. The Company also issued one warrant to
purchase one share of Common Stock for each share of Preferred or Common
Stock issued in the Private Placement. The warrants have an exercise price
of $5 per share and are exercisable at any time until April 19, 2002. The
warrants were assigned a fair value of $9,475,300, using the Black Scholes
pricing model. The Company also granted to the Placement Agent warrants to
purchase 321,135 shares of the Company's Common Stock. The warrants have an
exercise price of $1.28 per share and are exercisable at any time until
April 28, 2005. The warrants were assigned a fair value of $1,112,876,
using the Black Scholes pricing model.
9
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
On April 19, 2000, CDBeat.com, Inc. changed its name to Spinrocket.com. Inc.
("Spinrocket" or the "Company") because at that time it believed the new name
better reflected the expanded scope and applicability of its software.
However, as a result of management's ongoing review and evolution of its
business, the Company has determined to change its corporate name to
"ConnectivCorp." because this new name better describes the Company's
current strategic direction. The Company's business model is to facilitate the
online connection between targeted, profiled consumers, on the one hand, and
marketers desiring to reach those consumers, on the other hand. As its initial
focus, the Company has determined to form a new, wholly-owned subsidiary,
ConnectivHealth, in order to facilitate its connectivity model in the
healthcare field. The corporate name change will become effective upon the
filing of the Company's amended Certificate of Incorporation with the
Delaware Secretary of State, which the Company anticipates will be on or
about September 7, 2000.
As previously reported in the Company's Form 10-KSB for the year ended December
31, 1999 ("Form 10-KSB"), the Company completed a business combination in
November 1999 with Cakewalk LLC in a transaction accounted for by the purchase
method wherein Cakewalk LLC was deemed to be the acquiror and Spinrocket the
acquiree. A portion of the purchase price had been allocated to assets acquired
and liabilities assumed based on the estimated fair market value at the date of
acquisition and the balance of $3,909,546 was recorded as cost of acquired
software. The allocation of the $3,909,546 to acquired software was preliminary
and subject to the completion of an independent valuation. The results of the
completed valuation, which valued the acquired software at $4.2 million, have
been reported in the consolidated financial statements and the software is being
amortized using the straight-line method over its estimated useful life of five
years.
As previously disclosed in the Company's December 31, 1999 Form 10-KSB, on
March 30, 2000, the Company decided that it will exit the business conducted
by 32 Records by March 2001 and recharacterized 32 Records as a discontinued
operation for financial reporting purposes. Since March 30, 32 Records has
been operating the business and has sought to sell the business or assets.
Unless the Company can facilitate a sale in the near future, which it is
attempting to do, it anticipates that the business will be surrendered,
either through the transfer of assets or equity ownership, to the lender.
Consequently, the Company has written-off the business of 32 Records in
its consolidated financial statements as of June 30, 2000.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 as compared with six months ended June 30,
1999.
In the first six months the Company reported the following:
2000 1999
----------- ----------
Loss from continuing operations $(2,047,699) $ --
Loss from discontinued operations (1,412,700) (127,220)
---------- ----------
Net loss $(3,460,399) $ (127,220)
=========== ==========
Basic and diluted loss per share:
Loss from continuing operations $ (.11) $ --
Loss from discontinued operations (.07) (.03)
---------- -------
Net loss per common share-basic
and diluted $ (.18) $ (.03)
========== ========
The Company reported a loss from continuing operations of approximately $2
million. The Company's income of $92,000 consisted of $60,000 of consulting fee
revenue and $32,000 of interest earned on its funds. General and
administrative expenses of approximately $2.3 million include expenses of
which $316,000 was for salary-related expenses; $285,000 for consulting fees;
$245,000 for professional fees; $500,000 for amortization of acquired software
and goodwill, and $722,000 for expenses associated with issuance of stock
options.
10
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Quarter ended June 30, 2000, as compared with quarter ended June 30, 1999
In the second quarter the Company reported the following:
2000 1999
----------- -------
(Loss) from continuing operations $(1,260,993) $ --
Income (loss) from discontinued operations (1,054,993) 226,034
---------- --------
Net income (loss) $(2,315,986) $226,034
=========== ========
Basic and diluted loss per share:
(Loss) from continuing operations $ (.06) $ --
Income (Loss) from discontinued operations (.05) .06
---------- --------
Net Income (loss) per common share,
basic and diluted $ (.11) $ .06
========== ========
The Company reported a loss from continuing operations of approximately $1.3
million. The Company's income of $92,000 consisted of $60,000 of consulting fee
revenue and $32,000 of interest earned on its funds. General and administrative
expenses of approximately $1.4 million include expenses of which
$207,000 was for salary-related expenses; $147,000 for professional fees;
$194,000 for consulting fees; $245,000 for amortization of acquired software
and goodwill, and $485,000 for expenses associated with issuance of stock
options.
LIQUIDITY AND CAPITAL RESOURCES
PRIVATE PLACEMENT
On March 31, 2000, the Company raised approximately $3 million (net of Placement
Agent fees) through the private placement of 2,661,352 shares of the Company's
Series D Convertible Preferred Stock (the "Series D Preferred Stock") at a price
of $1.28 per share. The Company also issued one warrant for each share issued.
The warrants are exercisable at a price of $5 and expire on April 19, 2002. On
April 19, 2000, the Company converted the Series D Preferred Stock into shares
of Common Stock at a ratio of one share of Common Stock for one share of Series
D Preferred Stock an amended its charter to authorize the issuance of up to 40
million shares of common stock. At the second closing on April 28, 2000, the
Company received approximately $.8 million (net of Placement Agent fees) and
issued 648,128 shares of Common Stock.
The Company also issued one warrant to purchase one share of Common Stock for
each share of Preferred or Common Stock issued in the Private Placement. The
warrants have an exercise price of $5 per share and are exercisable at any
time until April 19, 2002. The Company also granted to the Placement Agent
warrants to purchase 321,135 shares of the Company's Common Stock. The
warrants have an exercise price of $1.28 per share and are exercisable at any
time until April 28, 2005.
LOAN DEFAULT
As previously disclosed in the Company's Form 10-KSB, 32 Records LLC ("32
Records") was, and continues to be, in default under the Management Agreement
among 32 Records, Cakewalk BRE LLC (the "BRE") and Entertainment Finance
International, Inc. ("EFI"). As a result of these defaults EFI, as the holder of
$5,500,000 principal amount of indebtedness issued by the BRE, has the right to
accelerate the maturity date of such indebtedness and exercise other remedies.
EFI was previously notified of these defaults and, as of the date hereof, has
neither taken any such action nor indicated an intention to do so. At the time
the loan was granted in June 1999,
11
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the lender required the establishment of a new subsidiary, the BRE, into which
the assets and liabilities of 32 Records were transferred as security for the
lender. Accordingly, the lender in the event of a declaration of default may
seek to take over the business of 32 Records, but it does not have recourse to
the Company's assets not included in the BRE.
Management anticipates a probable inability to meet the obligations under the
terms of the loan. Hence, 32 Records' ability to continue as a going concern is
dependent on its ability to renegotiate the loan agreement and/or secure
additional financing.
On March 30, 2000, the Company decided that it will exit the business conducted
by 32 Records by March 2001 and recharacterized 32 Records as a discontinued
operation for financial reporting purposes. Since March 30, 32 Records has been
operating the business and has sought to sell the business or assets. Unless
the Company can facilitate a sale in the near future, which it is attempting
to do, it anticipates that the business will be surrendered, either through
the transfer of assets or equity ownership, to the lender.
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Not applicable
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
PRIVATE PLACEMENT
On March 31, 2000 the Company raised approximately $3 million (net
of Placement Agent fees) through the private placement of 2,661,352 shares of
the Company's Series D Convertible Preferred Stock (the "Series D Preferred
Stock") at a price of $1.28 per share (the "Private Placement"). The Company
engaged Matrix U.S.A., LLC as Placement Agent to assist in the Private
Placement. On April 19, 2000, the Company converted the Series D Preferred Stock
into shares of Common Stock at a ratio of one share of Common Stock for one
share of Series D Preferred Stock and amended its charter to authorize the
issuance of up to 40 million shares of Common Stock. The private placement was
made to "accredited investors" as that term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended. At the second closing
on April 28, 2000, the Company received approximately $.8 million (net of
Placement Agent fees) and issued 648,128 shares of Common Stock.
The Company also issued one warrant to purchase one share of Common Stock for
each share of Preferred or Common Stock issued in the Private Placement. The
warrants have an exercise price of $5 per share and are exercisable at any
time until April 19, 2002. The Company also granted to the Placement Agent
warrants to purchase 321,135 shares of the Company's Common Stock. The
warrants have an exercise price of $1.28 per share and are exercisable at any
time until April 28, 2005.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As previously disclosed in the Company's Form 10-KSB for the year ending
December 31, 1999, 32 Records LLC ("32 Records"), a wholly owned subsidiary of
the Company was, and continues to be, in default under the Management Agreement
among 32 Records, Cakewalk BRE LLC (the "BRE"), a wholly owned subsidiary of 32
Records and Entertainment Finance International, Inc. ("EFI"). As a result of
these defaults EFI, as the holder of $5,500,000 principal amount of indebtedness
issued by the BRE, has the right to accelerate the maturity date of such
indebtedness and exercise other remedies. EFI was previously notified of these
defaults and, as of the date hereof, has neither taken any such action nor
indicated an intention to do so. At the time the loan was granted in June 1999,
the lender required the establishment of a new subsidiary, the BRE, into which
the assets and liabilities of 32 Records were transferred as security for the
lender. Accordingly, the lender in the event of a declaration of default may
seek to take over the business of 32 Records, but it does not have recourse to
the Company's assets not included in the BRE.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
12
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Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27.1 Financial Data Schedule
(b) Not applicable
13
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SPINROCKET.COM, INC.
Dated: August 21, 2000 By: /s/ Robert Miller
-----------------
Robert Miller
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Alan L. Schaffer
--------------------
Alan L. Schaffer
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
