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U.S. 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 SEPTMEBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-26941
ENTREPORT CORPORATION
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0703923
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(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2790 BUSINESS PARK DRIVE, SUITE B, SAN DIEGO, CALIFORNIA 92083
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
760-597-4800
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(ISSUER'S TELEPHONE NUMBER)
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of November 7, 2000, the Company had 11,681,213 shares of its $.001
par value common stock issued and outstanding.
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EntrePort Corporation
Form 10-QSB Index
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets at September 30, 2000 and December 31, 1999........2
Condensed Statements of Operations for the
three month periods ended September 30, 2000 and 1999
and for the nine month periods ended September 30, 2000 and 1999......3
Condensed Statements of Cash Flows for the
nine month periods ended September 30, 2000 and 1999..................4
Notes to Condensed Financial Statements.....................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............8
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.....................................................11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................11
ITEM 5. OTHER INFORMATION.....................................................11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................11
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EntrePort Corporation
Condensed Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (NOTE)
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,384,690 $ 1,458,139
Investments 399,500 399,500
Other current assets 28,372 205,397
------------------------------------
Total current assets 4,812,562 2,063,036
Property and equipment at cost, net 569,405 97,317
Website development costs, net 418,066 181,381
Other assets 440,179 91,884
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,220 $ 194,268
Accrued liabilities 187,306 263,399
Current portion of lease payable 83,136 -
Note payable to officer - 20,000
------------------------------------
Total current liabilities 700,662 477,667
Long term portion of lease payable 89,737 -
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized,
11,681,113 and 7,834,974 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 11,681 7,835
Additional paid-in capital 10,516,587 3,845,753
Deferred compensation (37,899) -
Accumulated deficit (5,040,556) (1,897,637)
------------------------------------
Total stockholders' equity 5,449,813 1,955,951
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
SEE ACCOMPANYING NOTES.
Note: The Balance Sheet at December 31, 1999 is derived from the audited financial statements at that date,
but does not include all of the disclosures required by generally accepted accounting principles.
</TABLE>
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EntrePort Corporation
Condensed Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 101,918 $ - $ 173,947 $ 11,414
Costs and expenses:
Cost of revenues 422,572 - 961,308 -
Product development 272,889 18,584 419,754 88,512
Selling, general
and administrative 674,332 485,497 2,114,372 1,096,092
--------------------------------------------------------------------------
Total costs and expenses 1,369,793 504,081 3,495,434 1,184,604
--------------------------------------------------------------------------
Loss from operations (1,267,875) (504,081) (3,321,487) (1,173,190)
Interest income 69,674 - 178,568 -
--------------------------------------------------------------------------
Net loss $ (1,198,201) $ (504,081) $ (3,142,919) $ (1,173,190)
==========================================================================
Net loss per common share
(basic and diluted) $ (0.10) $ (0.08) $ (0.30) $ (0.20)
==========================================================================
Weighted average shares used in
computing net loss per common
share (basic and diluted) 11,612,635 6,128,211 10,411,858 5,857,993
==========================================================================
SEE ACCOMPANYING NOTES.
3
</TABLE>
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EntrePort Corporation
Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,142,919) $ (1,173,190)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 178,020 9,123
Issuance of common stock options for services 136,801 -
Issuance of common stock and warrants for services 74,000 335,900
Changes in operating assets and liabilities 265,895 100,184
------------------------------------
Net cash flows used in operating activities (2,488,203) (727,983)
INVESTING ACTIVITIES
Purchases of property and equipment (369,690) (103,259)
Purchase of investment - (200,000)
Increases in website development costs (330,736) -
------------------------------------
Net cash flows used in investing activities (700,426) (303,259)
FINANCING ACTIVITIES
Re-payments on notes payable (33,494) -
Net proceeds form short-term notes - 215,000
Issuance of common stock for cash, net 6,148,674 899,820
------------------------------------
Net cash flows provided by financing activities 6,115,180 1,114,820
------------------------------------
Increase in cash and cash equivalents 2,926,551 83,578
Cash and cash equivalents at beginning of period 1,458,139 -
------------------------------------
Cash and cash equivalents at end of period $ 4,384,690 $ 83,578
====================================
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
Capital lease obligations $ 186,367 $ -
====================================
Issuance of common shares for services $ 362,500 $ -
====================================
See accompanying notes.
4
</TABLE>
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EntrePort Corporation
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB, and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments
necessary to present fairly the financial position as of September 30, 2000 and
the results of operations for the three and nine month periods ended September
30, 2000 and 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed financial statements
should be read in conjunction with the financial information included in the
Company's 1999 Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the period ended September
30, 2000 are not necessarily indicative of the results that may be attained for
the entire fiscal year. Certain prior period amounts have been reclassified to
conform to the current period presentation.
During the three months ended June 30, 2000, the Company emerged from the
development stage, as defined in Statement of Financial Standards ("SFAS") No.7.
Certain adjustments recorded in the December 31, 1999 financial statements
relate to the nine month period ended September 30, 1999. The Company has
restated the September 30, 1999 results of operations in the accompanying
financial statements to reflect these adjustments.
2. COMPREHENSIVE LOSS
Comprehensive loss for all periods presented is the same as net loss.
3. NET LOSS PER SHARE
The Company computes net loss per share following SFAS No. 128, EARNINGS PER
SHARE. SFAS 128 requires the presentation of basic and diluted income (loss) per
share amounts. Under the provisions of SFAS No. 128, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
shareholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares, composed of incremental common shares issuable upon the
exercise of stock options, are included in diluted net income (loss) per share
to the extent these shares are dilutive. Common equivalent shares are not
included in the computation of diluted net loss per share for the three and nine
month periods ended September 30, 2000 and 1999 because the effect would be
anti-dilutive.
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4. FINANCING AGREEMENT
The Company entered into an equipment financing lease agreement with
International Business Machines Corporation ("IBM") in May 2000. Principal
amount due at September 30, 2000 is $172,873. The term lease payable is due in
monthly principal and interest payments of $6,928 through May 2003. Borrowings
under the financing agreement are secured by specific equipment, with interest
payable at a rate of 18.7%.
5. COMMON STOCK
The Company raised approximately $3.0 million as a result of a private placement
offering during the period August 1999 to January 2000, for which the Company
incurred $87,700 in costs related to the offering and issued 50,850 shares of
common stock to various placement agents in connection with the private
placement (valued at $101,700). These costs have been charged as a reduction to
additional paid-in-capital. In January 2000, the Company issued 140,000 shares
of common stock at $2.00 to private investors for cash proceeds of $280,000.
In March 2000, the Company sold 3,525,000 shares of common stock at $2.00 per
share to private investors for cash proceeds of $7,050,000. The Company incurred
$1,248,019 in transaction costs related to the offering. In conjunction with the
offering, warrants to purchase 377,500 shares of the Company's common stock at a
price of $2.00 were issued to the placement agent. The warrants are fully
exercisable and expire in March 2005.
In January 2000, the Company issued 5,000 shares of common stock as
consideration for the extension of a note payable. In March 2000, the Company
issued 25,000 shares of common stock to an employee as a recruiting incentive.
The Company has expensed $60,000 related to these two transactions.
In September 2000, the Company issued 100,000 shares of common stock valued at
$362,500 for financial advisory services related to prospective acquisitions.
6. STOCK OPTION PLAN
During the nine month period ended September 30, 2000, the Company granted
553,500 stock options to employees, consultants and a board member with vesting
periods ranging from immediate to three years. The options are for the purchase
of common stock of the Company at prices ranging from $2.00 to $5.00 per share.
During the nine month period ended September 30, 2000, the Company recorded
compensation expense of $136,801 related to options outstanding to employees and
consultants. Options to purchase 630,000 shares of common stock of the Company
at prices ranging from $2.00 to $7.00 per share were cancelled during the nine
month period ended September 30, 2000. No options have been exercised during the
period.
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7. SALE TO METROSPLASH.COM
In March 2000, the Company sold to MetroSplash.com Inc. ("MetroSplash") its ERT1
website in exchange for 100,000 restricted common shares of MetroSplash. The
unlaunched ERT1 website was targeted to the African American professional.
During the third quarter, MetroSplash was sold to Lycos, Inc., a Delaware
Corporation, for $0.99 per share. Pending the completion of the sale, the
Company has not recorded a gain on the transaction for the period ending
September 30, 2000. The Company subsequently received a partial payment of
approximately $55,000 in October 2000 which will be recorded in the fourth
quarter.
8. SUBSEQUENT EVENTS
On October 24, 2000, the Company signed a definitive agreement to acquire
University.com, Inc. ("University.com") in a stock-for stock transaction.
Pursuant to the merger agreement, the Company will issue 5,677,609 shares of its
common stock to the shareholders of University.com in exchange for all the
issued and outstanding securities of University.com. The Company will also
assume certain warrants and options issued by University.com, which upon
assumption by the Company will require the Company to issue upon their exercise
up to 1,171,019 additional shares of common stock. It is planned that the merger
will be accounted for as a purchase transaction. The acquisition is subject to
certain closing conditions, including the approval by both the Company's and
University.com's stockholders, and is expected to close during the fourth
quarter of 2000.
On October 25, 2000, the Company signed a definitive agreement to acquire By
Referral Only, Inc. ("By Referral Only") in a stock and cash merger transaction.
Pursuant to the merger agreement, the Company will pay the shareholders of By
Referral Only $4,000,000 cash and issue to them 2,250,000 shares of the
Company's common stock in exchange for all the issued and outstanding securities
of By Referral Only. By Referral Only has no outstanding stock options or
warrants. It is planned that the merger will be accounted for as a purchase
transaction. The acquisition is subject to certain closing conditions, including
the Company's receipt of an additional $5,000,000 of capital and the approval by
the Company's stockholders. The acquisition is expected to close during the
fourth quarter of 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
REVENUES
For the three and nine months ended September 30, 2000, revenues were $101,918
and $173,947 compared to $0 and $11,414 for the same periods in fiscal 1999, an
increase of $101,918 for the three months and $162,533 or 1,424% for the nine
months ended September 30, 2000. The increase for both the three and nine month
periods consists of membership revenue as a result of the launch our
iSucceed.com website on April 25, 2000 and sponsorship revenue as a result of
hosting of real estate seminars during the nine months ended September 30, 2000.
The Company's ability to increase revenue for the remainder of the fiscal year
is dependent on increasing subscriber membership and increasing the number of
company hosted seminars.
GROSS PROFIT (LOSS)
Gross profit (loss) on revenues was $(320,654) and $(787,361) for the three and
nine months ended September 30, 2000 compared to $0 and $11,414 for the same
periods in fiscal 1999, a decrease of $320,654 for the three months and $798,775
or (6,998%) for the nine months ended September 30, 2000. During fiscal 2000,
the Company incurred direct costs related to website hosting, depreciation and
amortization, website content and seminar hosting that did not occur in fiscal
1999.
PRODUCT DEVELOPMENT EXPENSE
Product development expenses were $272,889 and $419,754 for the three and nine
months ended September 30, 2000 compared to $18,584 and $88,512 for the same
periods in fiscal 1999, an increase of $254,305 or 1,368% for the three months
and $331,242 or 374% for the nine months ended September 30, 2000. The increase
in product development expense was due to an increased effort to complete the
development of the Company's iSucceed.com website during the second quarter of
fiscal 2000. Current product development efforts are devoted to improving the
current iSucceed.com website. The Company expects to increase funding for
product development of the current iSucceed.com website and future websites in
future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses were $674,332 and $2,114,372 for
the three and nine months ended September 30, 2000 compared to $485,497 and
$1,096,092 for the same periods in fiscal 1999, an increase of $188,835 or 39%
for the three months and $1,018,280 or 93% for the nine months ended September
30, 2000. The increase in the selling, general and administrative expense was
due to build-up of the selling and general and administrative infrastructure
during the nine months ended September 30, 2000 that includes selling, customer
support, business development, accounting, legal, human resources, information
technology and investor relations support functions. Selling and general and
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administrative expenses are expected to decrease as a percentage of revenues in
the near-term due to anticipated increases in revenues.
INTEREST INCOME
Net interest income was $69,674 and $178,568, or 68% and 103% of revenues,
respectively, for the three and nine months ended September 30, 2000 compared to
no interest income or expense for the same periods in fiscal 1999. The increase
for the three and nine month periods was due primarily to increased investment
of proceeds from the two private placements of the Company's common stock that
occurred during the period from December 1999 through March 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our activities to date primarily through the sale of debt and
equity securities. From March through May 1999, we conducted the private
placement sale of convertible notes payable for gross proceeds of $695,000. In
June 1999, all $695,000 in principal was converted into a total of 267,500
shares of common stock. In August 1999, the Company sold 99,710 shares of common
stock for $199,420 in a private placement. Additionally, during the period
August 1999 to January 2000, we conducted the private placement sale of
1,424,430 shares of common stock at $2.00 per share for gross proceeds of
$2,848,860. During February and March 2000, we completed our private placement
managed by Roth Capital Partners Inc. and sold 3,525,000 shares of common stock
at $2.00 per share for net proceeds amounting to $5,801,981.
As of September 30, 2000, we had working capital of $4,230,067. Our plan of
operations over the next twelve months includes the upgrade and enhancement of
our initial Web portal devoted to real estate and the development of other
industry specific Web portals. We believe that our current cash balance, as well
as expected increases in anticipated revenues, will be sufficient to fund the
operations of our real estate Web portal. Additional financing will be required
to fund planned acquisitions and development of other industry specific Web
portals. The Company is presently in discussions with several institutions
regarding financial investing, however as of this date, the Company has not
received a commitment to provide additional financing, and there can be no
assurances that the Company will receive a commitment to provide additional
financing in the future.
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FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that are based on our beliefs as
well as assumptions made by and information currently available to us. When used
in this filing, the words "believe," "endeavor," "expect," "anticipate,"
"estimate," "intends," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including, without limitation, the Company's
recent commencement of revenue producing operations and lack of significant
operating history; the Company's present financial condition and the risks and
the availability of additional capital as and when required; the risks and
uncertainties concerning the Company's ability to consummate the acquisitions of
University.com and By Referral Only; assuming the Company is able to consummate
the acquisitions, the risks and uncertainties concerning the Company's ability
to successfully integrate the operations of University.com and By Referral Only;
the risks and uncertainties concerning technological changes; increased
competition; and general economic conditions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. We caution potential investors not to place undue reliance on any
such forward-looking statements, all of which speak only as of the date made.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2000, the Company sold and issued
the following unregistered securities:
COMMON STOCK
In September 2000, the Company issued 100,000 shares of common stock valued at
$362,500 for financial advisory services related to prospective acquisitions.
STOCK OPTIONS
During the three month period ended September 30, 2000, the Company granted
options to employees, consultants and a board member to purchase an aggregate of
87,000 shares of common stock with vesting periods ranging, from two to three
years and with exercise prices ranging from $3.25 to $5.00 per share. Options to
purchase 150,000 shares of common stock at a price of $4.00 per share were
cancelled during the period. No consideration was paid to the Company by any
recipient of any of the foregoing options for the grant of any such options. No
options have been exercised during the period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
ITEM 5. OTHER INFORMATION.
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
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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.
EntrePort Corporation
(Registrant)
Dated: November 7, 2000 By: /s/ William A. Shue
-----------------------------
William A. Shue,
Chief Executive Officer
Dated: November 7, 2000 By: /s/ Ronald D. Suokko
-----------------------------
Ronald D. Suokko,
Chief Accounting Officer
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