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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] 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
(A Development Stage Company)
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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.)
10455 Sorrento Valley Road, SUITE 204, San Diego, California 92121
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(Address of principal executive offices)
858-643-5100
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK,$.001 PAR VALUE.
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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
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Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (_)
The issuer's revenues for the most recent fiscal year was $11,911.
The aggregate market value of the voting and non-voting common equity
held by nonaffiliates of the registrant was approximately $70,833,057 as of
March 21, 2000. Shares of common stock held by each officer and director and by
each person or group who owns 5% or more of the outstanding common stock
amounting to 4,155,334 shares have been excluded in that such persons or groups
may be deemed to be affiliates. This determination of affiliates status is not
necessarily a conclusive determination for other purposes.
As of March 21, 2000, the Company had 11,420,263 shares of its $.001
par value common stock issued and outstanding.
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format: No.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Entreport Corporation ("the Company") was formed under the laws of the
State of Florida on October 4, 1996.
In March 2000, the Company completed its private placement by the Roth
Partners Inc. placement agents. The Company issued 3,537,500 shares of common
stock at $2.00 per share to private investors for net proceeds of approximately
$6.1 million. In conjunction with the offering, warrants to purchase 353,750
shares of the Company's stock were issued to the placement agent. The exercise
price is $2.00 per share and the warrants expire March 2005. In conjunction with
the offering, the company has signed a registration rights agreement to prepare
and file within 30 days from the termination date of the offering a registration
statement under the 1933 Act for purposes of registering the shares.
In March 2000, the Company sold one of its test Websites, that had not
been launched, for 100,000 shares of common stock of Metrosplash.com Inc., a
Delaware Corporation. The Website was developed to target the African American
professional.
BUSINESS OF ISSUER
GENERAL
We are a development stage company consolidating proprietary training
content in Web portals within industry segments through what we believe to be a
unique low-cost content and membership acquisition model. Our initial Web
portal, located at www.isucceed.com, is dedicated to the approximately 1,000,000
residential real estate agents located in the United States and Canada. As of
the date of this filing, we have entered into agreements with approximately 145
of the top real estate agents, speakers and trainers in North America pursuant
to which those parties have agreed to post their content and training on the
Internet at our real estate Web portal at no or very low cost to us. We intend
to launch our real estate Web portal in April 2000.
Each of our portals are intended to provide rich content to specific
industry groups, including a broad array of resources and services such as:
o both live and recorded training o search engines
o e-mail o on-line shopping
o forums o chat rooms
Certain resources and services such as e-mail, forums, search engines, shopping
and training will be common to all portals. However, each portal will also
contain resources and services tailored to the needs and interests of the
specific industry group for that portal. By adopting this approach, we believe
that each portal will be of more utility to its targeted users than are the
majority of current portals which seek to attract the public at large.
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OUR MARKET
Our market includes those groups of professionals, independent
contractors, sales people and others that are large and cohesive enough to
represent a community of business people with similar business goals and needs.
These groups include nationwide members of industry segments, such as the
approximately 1,000,000 real estate agents in North America, or the employees
and agents of large national and international sales organizations. All of these
industry segments currently spend significant amounts of money on training,
information and other goods and services intended to fulfill or further their
business needs and goals.
Our business plan is based on management's collective experience that
the members of many industry segments are currently under served in terms of
training and information relating to their industry and job functions. We
believe that the primary problem facing industry segments in need of training
and content is the ability to access the available training and content on a
timely and cost effective basis. Training and content has been traditionally
disseminated by way of live sessions and seminars and through the distribution
of books, audio and video tapes. However, these traditional methods typically
involve relatively high costs to the recipients and fail to ensure the
distribution of information on a timely basis.
Our internal research and analysis suggests that the members of many
industry segments are willing to pay for a service that can deliver meaningful
training and content on a timely and cost effective basis. We believe that the
need within these industry segments and organizations for timely and cost
effective training and content presents a significant market opportunity for
EntrePort. We also believe that the training and information provided by our Web
portals will enhance the skills of the subscribers and increase their profit
potential.
OUR SOLUTION
Our business model is designed to take advantage of the unique
opportunities offered by the Internet. The increasing use of the Internet as a
commercial medium has been accompanied by a diversification in the type of
commerce that is conducted on the Internet and a proliferation in the types of
products and services available on the Internet. The Internet has created a
dynamic and particularly attractive medium for business, empowering businesses
and consumers to distribute and gather more services and information than is
feasible with traditional commerce systems, to communicate and shop in ways that
can be more convenient for them and to interact with each other in many new
ways. As the Internet has become more accessible and widely used for
transactions, it has emerged as a primary business channel alongside the
telephone, paper-based communication and face-to-face interaction.
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We intend to address the need for business training and information
through the consolidation of proprietary training and content in Web portals
within industry segments. The Internet offers the opportunity to provide certain
targeted industry segments with training and information that is broader, more
current and more accessible than has previously been available, all at a lower
cost to the recipient. By consolidating content and presenting it in Web
portals, we will be able to offer our customers current training and information
that is accessible by them 24 hours a day, seven days a week for a relatively
low monthly membership fee.
OUR STRATEGY
Our objective is to be the premier producer of Web portals directed at
industry specific audiences. To this end, we intend to position EntrePort as a
membership driven marketing model capable of generating multiple revenue streams
while, at the same time, generating product/services and members at no or little
cost to the company. In this respect, we believe that EntrePort has the ability
to offer a financial model unlike the majority of other e-commerce companies.
The key to our strategy is our proposed strategic alliances with industry
marketing experts. Many marketing experts derive their revenue from the sale of
proprietary marketing products, typically books, audio and video tapes. To this
end, marketers typically sponsor, at their expense, seminars and other means of
paid advertising for purposes of reaching their audience.
We will offer these marketers the opportunity to post content, either
by way of text, audio or video tape, and sponsor seminars at our portals at no
cost to them. In addition, we will allow the marketers the opportunity to offer
their proprietary products for sale at our Web store. At the end of each content
posting or training segment, the marketers' products will be showcased and
members will be directed to our Web store where the products will be available
for purchase. We will not warehouse the products but will take orders, process
credit cards and pass along the order to the respective provider for shipments.
As of the date of this filing, we have signed agreements with approximately 145
of the top real estate agents, speakers and trainers in North America pursuant
to which those parties have agreed to provide us with commission on all sales of
their products through our Web store.
In addition to content, we believe that our industry marketing experts
will provide access to significant numbers of portal subscribers at little or no
cost to us. We expect that the marketing experts that post content and sponsor
or participate in seminars will bring to the portal the same marketing audience
they have been selling to for years. Our primary marketing objective will be to
bring content to the public via live seminars and, thereby, capitalize on each
marketer's experience and ability to sign up a predictable amount of members at
the end of each seminar.
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In summary, we believe that our business model offers the following
potential benefits and advantages:
o Access to leading edge content from recognized marketing
experts at no or little cost to us
o Access to the clients and followers of the marketing experts,
thereby creating an immediate significant base of potential
paying subscribers at little or no cost to us
o Allowing members and visitors to develop a relationship with
the marketing experts, thereby increasing loyalty, retention
and product sales
o Creation of a deep content library deliverable on demand to
members
OUR PRODUCTS AND SERVICE
We intend to develop Web portals at which we will offer general
information, communication tools, training and other goods and services to
members of certain industry specific Internet communities. These Web portals
will be accessible by the general public, however, only established subscribers
or registered visitors will be permitted to use our portals as the case may be.
Our Web portals will be accessible by a minimum hardware configuration
consisting of a 486 personal computer with Windows `95 or greater, with 16
megabytes of RAM, 20 megabytes of free hard disk space, a 14,400 modem and an
Internet connection. All services will be provided in a Windows-based menu
driven format with "point and click" interactivity. Persons who wish to use our
Web portals will be able to subscribe over the Internet by completing an
application available at the Web portal, opening an account and making a deposit
with us via credit card. In May 1999, we were approved as a credit card merchant
by Imperial Bank.
Our portals will provide rich content to specific industry groups. Each
portal will offer a broad array of resources and services such as e-mail,
forums, search engines, and on-line shopping as well as both live and recorded
training. Certain resources and services such as e-mail, forums, search engines,
shopping and training will be common to all portals. However, each portal will
also contain resources and services tailored to the needs and interests of the
particular industry group for that portal. By adopting this approach, we believe
that each portal will be of more utility to its targeted users than are the
majority of current portals which seek to attract the public at large.
Our first Web portal will be located at www.isucceed.com and will be
aimed at real estate professionals in the United States and Canada. According to
the National Association of Realtors there are over 720,000 realtors in the
United States alone. The U.S. Census Bureau estimates that in 1998, this
industry employed 1,231,471 people and generated over $141 billion in revenue.
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We believe, based on our internal marketing analysis and discussions
with senior executives in the real estate industry, that the real estate
industry is looking to increase operating efficiencies and profits through the
deployment of computer/Internet technologies, particularly in the area of sales
training. We will offer membership based on-line training for real estate
professionals.
We expect that the real estate portal will become operational in April
2000. We expect that the initial content will include subjects as:
o listing for profit o pricing strategies
o profiting on "for sale by owners" o agent referrals
o target marketing systems o zero cost programs
o pre-list packaging o customer service
o virtual home tours o referrals to home
buyers
We intend to replicate our initial portal
for additional industry specific groups large and cohesive enough to support an
Internet community. We are currently working with a team of marketing experts
whose job is to develop additional portals, including the development of a
database of programming ideas and the retention of recognized industry talent to
provide content and members. Our goal is to become the leading on-line, industry
specific portal service.
MARKETING
As noted above, we intend to market our Web portals primarily through
proposed strategic alliances with industry marketing experts. We also intend to
market our products and services through a combination of on-line and off-line
advertising, including traditional industry print, targeted direct mail,
telemarketing (phone, fax and e-mail) and through the visibility created by the
seminars hosted or sponsored by us.
We intend to use a direct sales force as well as alternative
distribution channels. Through the combination of a direct sales force and
alternative distribution channels, we believe we will be able to more rapidly
access markets and increase revenue-producing traffic on our portal network. To
implement our distribution strategy, we intend to develop an in-house direct
sales force to market our portal products and services directly to large
corporations in the target markets. In addition, the direct sales force will
target national and international accounts and target large audiences through an
aggressive seminar program.
As part of our distribution strategy, we are developing several
alternative distribution channels, including agents and resellers. Agents and
resellers will be independent individuals and organizations, respectively,
selling our portal services in exchange for revenue based commissions.
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COMPETITION
The market for members, visitors and Internet advertising is new and
rapidly evolving, and competition for members, visitors and advertisers is
intense and is expected to increase significantly in the future. Barriers to
entry are relatively insubstantial. We believe that the principal competitive
factors for companies seeking to create communities on the Internet are critical
mass, functionality, brand recognition, member affinity and loyalty, broad
demographic focus and open access to visitors. Other companies who are primarily
focused on creating Web-based communities on the Internet are GeoCities,
Tripod/Lycos, Angelfire, Xoom and theglobe.com. We will likely also face
competition in the future from Web directories, search engines, software
archives, content sites, commercial on-line services, sites maintained by ISPs
and other entities that attempt to or establish communities on the Internet by
developing their own or purchasing one of our competitors. In addition, we could
face competition in the future from traditional media companies, a number of
which, including Disney, CBS and NBC, have recently made significant
acquisitions of or investments in Internet companies. Further, there can be no
assurance that our competitors and potential competitors will not develop
communities that are equal or superior to or that achieve greater market
acceptance than ours.
We also compete for visitors with many Internet content providers and
ISPs, including Web directories, search engines, shareware archives, content
sites, commercial on-line services and sites maintained by ISPs, as well as
thousands of Internet sites operated by individuals and government and
educational institutions. These competitors include free information, search and
content sites or services, such as AOL, CNET, CNN/Time Warner, Excite, Infoseek,
Lycos, Netscape, Microsoft and Yahoo!.
We also compete with the foregoing companies, as well as traditional
forms of media such as newspapers, magazines, radio and television, for
advertisers and advertising revenue. We believe that the principal competitive
factors in attracting advertisers include the amount of traffic on our Web site,
brand recognition, customer service, the demographics of our members and
viewers, or ability to offer targeted audiences and the overall
cost-effectiveness of the advertising medium offered by us. We believe that the
number of Internet companies relying on Web-based advertising revenue will
increase greatly in the future. Accordingly, we will likely face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.
Virtually all of our existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. Such competitors are able to undertake more extensive
marketing campaigns for their brands and services, adopt more aggressive
advertising pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers and third
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party content providers. There can be no assurance that Internet content
providers and ISPs, including Web directories, search engines, shareware
archives, sites that offer professional editorial content, commercial on-line
services and sites maintained by ISPs will not be perceived by advertisers as
having more desirable Web sites for placement of advertisements. In addition,
many of our potential current advertising customers and strategic partners have
established collaborative relationships with certain of our competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there can
be no assurance that we will be able to develop and grow our memberships,
traffic levels and advertiser customer base. There can also be no assurance that
we will be able to compete successfully against our current or future
competitors or that competition will not have a material adverse effect on our
business, results of operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our technology as proprietary and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We
currently have no patents or patents pending and do not anticipate that patents
will become a significant part of our intellectual property in the foreseeable
future. We generally enter into confidentiality or license agreements with our
employees and consultants, and generally control access to and distribution of
our documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. We intend to pursue the registration of our service marks in the
United States and internationally, and have applied for the registration in the
United States for the service mark "EntrePort." Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are distributed or made available through the
Internet, and policing unauthorized use of our proprietary information will be
difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of ours or other companies within
this market. There can be no assurance that the steps taken by us will prevent
misappropriation or infringement of our proprietary information. Any such
infringement or misappropriation, should it occur, might have a material adverse
effect on our business results of operations and financial condition. In
addition, litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation might result in
substantial costs and diversion of resources and management attention and could
have a material adverse effect on our business, results of operations and
financial condition. Furthermore, there can be no assurance that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us.
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TECHNOLOGICAL CAPABILITY AND SUPPORT
We have engaged Stellcom, a Web development company located in San
Diego, California, to build our Web portals. We will hire personnel to
internally manage and service the portals on a daily basis. We believe that this
strategy will be the most efficient and productive method of building our portal
network.
We intend to provide a high level of customer support to our customer
base. We intend to provide technical and customer service support via our
corporate e-mail, 24 hours a day, seven days a week. In addition to the support
channel, we intend to provide for instant messaging and support for chat rooms.
To assist in providing quality and responsive support, we intend to develop or
acquire software programs that record, acknowledge, route, queue and generate
reports on e-mail.
EMPLOYEES
As of March 15, 2000, we employ 24 people on a full-time basis and we
intend to employ an additional 15 to 20 people over the next 90 days. None of
our employees are covered by an ongoing collective bargaining agreement with us
and we believe that our relationship with our employees is good.
ITEM 2. PROPERTIES
Our executive offices are located in San Diego, California and consist
of 3,000 square feet of office space. We lease this space pursuant to a three
year lease expiring on March 31, 2002, at the rate of $3,345 per month. We will
require an additional 15,000 to 20,000 square feet of office space during
Quarter 2 of fiscal 2000 and are presently negotiating for leased space in the
San Diego area, at a rate ranging from approximately $20,000 to $25,000 per
month. We believe there is an adequate supply of suitable office space available
for lease on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been listed on the NASD's OTC Bulletin
Board under the symbol "ERTE" since October 1998. From inception of trading
through March 21, 2000, the high and low last sale prices were $10.125 per share
and $ 0.0625 per share, respectively. The Company considers its common stock to
be "thinly traded" and that any reported bid or sale prices may not be a true
market-based valuation of the common stock.
As of March 21, 2000, there were approximately 132 record holders of
the Company's common stock.
The Company has not paid any cash dividends since its inception and
does not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of the
Company's business.
In the last fiscal year, the Company has sold and issued the following
unregistered securities:
COMMON STOCK
In February 1999, the Company retired 4,410,000 shares of company stock
from an original founder of the Company, for no consideration. Additionally, in
March 1999, the Company issued 5,400,000 shares of common stock to various
initial investors, and key employees, including a current Board member for
services rendered.
In June 1999, the Company issued 267,500 shares of common stock, as a
result of the conversion of convertible notes payable.
In August 1999, the Company sold 99,710 shares of common stock for
$199,420 in a private placement.
In December 1999, the Company issued 1,284,430 shares of common stock
in a private placement for gross cash proceeds of $2,568,860. The Company
incurred $38,185 in offering costs, and issued 133,334 shares of common stock to
a financial consultant for services rendered (valued at $266,668). These costs
have been charged as a reduction to additional paid-in capital.
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In November 1999, the Company issued 25,000 shares of common stock, as
a result of an agreement to extend two loans. In December 1999, the Company also
issued 10,000 shares of common stock to a vendor for Web development services
(valued at $20,000).
COMMON STOCK WARRANTS
Periodically, the Company will issue warrants to outside consultants in
lieu of stock options. During the period October 4, 1996 (inception) through
December 31, 1999, the Company issued 10,000 warrants at a $1.00 exercise price.
The warrants are exercisable at December 31, 1999 and expire in October 2002.
STOCK OPTIONS
During the year ended December 31, 1999, the Company granted options to
purchase an aggregate of 1,810,000 shares of Common Stock at exercise prices
ranging from $0.10 to $5.00 per share. No consideration was paid to the Company
by any recipient of any of the foregoing options for the grant of any such
options.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATIONS
EntrePort is a development stage company engaged in the business of
developing Web portals on the Internet for purposes of offering information,
communication tools and training to members of certain industry specific
Internet communities. As of the date hereof, we have not completed the
development of any of our proposed Web portals nor otherwise commenced material
revenue producing operations. We expect to complete our initial Web portal
devoted to residential real estate agents in April 2000. Our activities to date
have included the market analysis for and development of our initial Web portals
and obtaining equity and financing.
In early 1999, we conducted in-house beta testing of several industry
specific Web portals, for which we received $11,911 in revenue during the year
ended December 31, 1999.
We intend to generate revenue through:
o membership fees charged to subscribers to our Web portals
o advertising income from third party advertisers at our Web
portals
o percentage interests in the income derived by third parties
who provide seminars, training and speeches at our Web portals
o commissions earned on the sale of products and services at our
Web store
LIQUIDITY AND CAPITAL RESOURCES
We have financed our activities to date 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. The
notes were in the aggregate principal amount of $695,000 and bore interest on
the principal amount at the rate of six percent (6%) per annum. The principal
amount of the notes were convertible into shares of common stock at the rate of
$2.00 to $3.00 per share. 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 to December 1999, we conducted the private placement
sale of 1,284,430 shares of common stock at $2.00 per share for gross proceeds
of $2,568,860.
As of December 31, 1999 we had working capital of $1,185,869, however
in March 2000 we completed our Roth Partners Inc. private placement. We issued
3,337,500 shares of common stock issued at $2.00 per share for net proceeds of
approximately $6.1 million.
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Our plan of operations over the next 12 months includes the expected
completion of our initial Web portal devoted to real estate and the development
of other industry specific Web portals. The Company believes that its current
cash balance, which includes the additional $6.1 million in additional equity
financing raised through March 20, 2000 will be sufficient to fund the current
plan of operations for at least the remainder of the fiscal year.
YEAR 2000 COMPLIANCE
As of the date of this filing, nothing has come to our attention that
would indicate that any of our computer software applications, or those of our
information suppliers and software licensers, are unable to operate accurately
after January 1, 2000. However, we have been advised that the consequences of a
Year 2000 failure may not become apparent for several weeks (or months)
following January 1, 2000. We previously have appointed a Year 2000 Committee to
assess the scope of our risks in this regard and adopt appropriate measures to
bring our applications into compliance. To date, the costs associated with this
project have been insignificant. However, no definitive assurance can be given
that all of our systems are Year 2000 compliant or that the impact of our
failure to achieve substantial Year 2000 compliance will not have a material
adverse effect on our business, financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
This filing contains forms of 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," "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, which are identified and described in this "Risk
Factors" section. Should one or more of this 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.
You should carefully consider the following risk factors and the other
information in this memorandum before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your investment. In addition to
those risks identified elsewhere in this Annual Report on Form 10-K|SB, the
Company's business and results of operations are subject to other risks,
including the following risk factors:
WE ARE A DEVELOPMENT STAGE COMPANY. We were founded in 1996 and began
our current Internet-based business in March 1999. We are a development stage
company and we have no significant operating history. As of the date of this
filing, we have not completed the development of any of our proposed Web portals
nor otherwise commenced meaningful revenue producing operations. Our activities
to date have included the market analysis for and development of our initial Web
portals.
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Our primary business purpose is to develop Web portals at which we will
offer general information, communication tools, training and other goods and
services to members of certain industry specific Internet communities. As a new
company, our prospects are subject to all risks, expenses, and uncertainties
frequently encountered by companies in the new and rapidly evolving markets for
Internet-related products and services. In addition, we are subject to all of
the risks, uncertainties, expenses, delays, problems, and difficulties typically
encountered in the establishment of a new business and the development of new
services and processes. We expect that unanticipated expenses, problems, and
technical difficulties may occur, which may result in material delays both in
the completion of our Web portals and in offering our services to the market. We
expect to continue to incur operating losses until such time as we can derive
meaningful revenues from our Web portals.
FINANCIAL CONDITION; BEST EFFORTS OFFERING; ADDITIONAL FINANCING. From
our inception in October 1996 to December 31, 1999, we generated revenues of
only $12,000 and incurred a cumulative loss of $1,898,000. The development,
sales, marketing and support of our business will require continued substantial
expenditures for the foreseeable future, which could result in additional
operating losses. The Company has funded the development to date substantially
through equity financing. Any failure by the Company to maintain its external
funding sources or be profitable in the future or that present capital and any
funds provided by operations will be sufficient to fund the Company's future
capital requirements.
OUR BUSINESS MODEL IS NEW AND HAS NOT BEEN PROVEN BY US OR ANYONE ELSE.
We are engaged in the business of developing Web portals dedicated to offering
general information, communication tools, training and other goods and services
to members of certain industry specific Internet communities. We have not
commenced commercial operations based on our business model and, to our
knowledge, no other business has engaged in operations primarily devoted to
offering general information, communication tools, training and other goods and
services to members of industry specific Internet communities. While we believe
that the uniqueness of our business model offers certain potential advantages,
that same uniqueness also offers potential risks associated with the development
of a business model that is untried and unproven. While there are certain
businesses that are engaged primarily in the business of developing communities
of personalized Web sites and portals, these businesses are not as target
specific as we are and their success may not be an indicator of our potential
success.
BECAUSE WE HAVE FEW PROPRIETARY RIGHTS, OTHERS CAN PROVIDE PRODUCTS AND
SERVICES SUBSTANTIALLY EQUIVALENT TO OURS. We hold no patents. We believe that
most of the technology used by us in the design and implementation of our Web
portals is generally known and available to others. Consequently, others can
design and implement Web portals substantially equivalent to ours. We rely on a
combination of confidentiality agreements and trade secret law to protect our
confidential information. In addition, we restrict access to confidential
15
<PAGE>
information on a "need to know" basis. However, there can be no assurance that
we will be able to maintain the confidentiality of our proprietary information.
If our trademark or other proprietary rights are violated, or if a third party
claims that we violate their trademark or other proprietary rights, we may be
required to engage in litigation. Proprietary rights litigation tends to be
costly and time consuming. Bringing or defending claims related to our
proprietary rights may require us to redirect our human and monetary resources
to address those claims.
WE ARE DEPENDENT UPON OUR KEY PERSONNEL. Our performance is
substantially dependent on the continued services and on the performance of our
senior management and other key personnel, particularly David D'Arcangelo and
William Shue. We currently have three year employment agreements in place with
Messrs. D'Arcangelo and Shue. In addition, we plan to obtain "key person" life
insurance for our key personnel, however, at this time, no such policies are in
effect. Our performance will also depend upon our ability to retain and motivate
other officers and key employees. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our business, prospects, financial condition and results of operations. Our
future success also depends on our ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and there can be no assurance that we will be able to successfully
attract, assimilate or retain sufficiently qualified personnel. The failure to
retain and attract the necessary technical, managerial, merchandising, marketing
and customer service personnel could have a material adverse effect on our
business, prospects, financial condition and results of operations.
WE MAY BE SUBJECT TO CLAIMS AS A RESULT OF INFORMATION PUBLISHED ON,
POSTED ON OR ACCESSIBLE FROM OUR INTERNET SITES. We may be subject to claims of
defamation, negligence, copyright or trademark infringement (including
contributory infringement) or other claims relating to the information contained
on our Web portals, whether written by us or third parties. These types of
claims have been brought against on-line services in the past and can be costly
to defend regardless of the merit of the lawsuit. Although recent federal
legislation protects on-line services from some claims when the material is
written by third parties, this protection is limited. Furthermore, the law in
this area remains in flux and varies from state to state. While no claims have
been made against us to date, our business could be seriously harmed if one were
asserted.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON THE INTERNET AND
INTERNET INFRASTRUCTURE DEVELOPMENT. Our success will depend in large part on
continued growth in, and the use of, the Internet. There are critical issues
concerning the commercial use of the Internet which remain unresolved. The
issues concerning the commercial use of the Internet which we expect to effect
the development of the market for our products and services include:
o security o ease of access
o reliability o quality of service
o cost
16
<PAGE>
Demand and market acceptance of the Internet are subject to a high level of
uncertainty and are dependent on a number of factors, including the growth in
consumer access to and acceptance of new interactive technologies that
facilitate interactive communications between organizations and targeted
audiences. If the Internet fails to develop or develops more slowly than we
expect as a commercial or business medium, it will adversely affect our
business.
NO DIVIDENDS. We have not paid any cash dividends to date and do not
expect to pay dividends for the foreseeable future. We intend to retain
earnings, if any, as necessary to finance the operation and expansion of our
business.
NO ACTIVE TRADING MARKET. Our common shares are traded on the NASD's
OTC Bulletin Board under the symbol "ERTE." On March 21, 2000, the last reported
sale price of the common stock on the OTC Bulletin Board was $9.75 per share.
The range of last sale prices of our stock over the previous 52 weeks included a
high and low of $10.125 and $.0625, respectively. However, we consider our
common stock to be "thinly traded" and any last reported sale prices may not be
a true market-based valuation of our common stock.
NO ASSURANCES OF NASDAQ LISTING. We intend to apply for a listing of
our common stock on the NASDAQ Small Cap Stock Market as soon as practicable.
However, in order to meet the NASDAQ's objective listing criteria, we require
$4,000,000 in net tangible assets plus additional tangible assets in the
approximate amount of our projected cumulative negative cash flow until such
time as we expect to operate profitably. Based on our net tangible assets as of
December 31, 1999, we believe that we will need the net proceeds from the sale
of substantially all of the shares offered during our private offering that
concluded in March 2000 (approximately $6.1 million) in order to qualify for a
NASDAQ Small Cap listing. However, we cannot give you any assurance that our
common stock will qualify for a listing. In addition, the NASDAQ Small Cap Stock
Market has certain subjective criteria for listing applications. Even if we are
successful in selling the maximum number of shares offered hereby, there can be
no assurance that the NASDAQ will list our common stock on the NASDAQ Small Cap
Stock Market.
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's historical financial statements and
the notes thereto included elsewhere in this Annual Report on Form 10-KSB.
<TABLE>
<CAPTION>
For the Period
October 4, 1996
(inception)
Years ended December 31, through
-------------------------------------- December 31,
STATEMENT OF OPERATIONS DATA: 1999 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 11,911 - $ 11,911
Operating expenses:
Research and development 97,579 - 97,579
Marketing, general and administrative 1,796,990 800 1,802,815
---------------------------------------------------------
Total operating expenses 1,894,569 800 1,900,394
---------------------------------------------------------
Loss from operations (1,882,658) (800) (1,888,483)
Net Loss $ (1,891,812) $ (800) $ (1,897,637)
Net loss per share (basic and diluted)(1) $ (.31) $ -
Weighted average common shares
outstanding - (basic and diluted) (1) 6,068,605 5,025,000
</TABLE>
December 31,
1999 1998
--------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $1,458,139 $ -
Working capital 1,185,869 -
Total assets 2,433,618 -
Total stockholders' equity 1,955,951 -
(1) See note 1 of the notes to the financial statements for a description of the
computation of net loss per share and the number of shares used in the per share
calculation.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements and related notes thereto required by this
item are listed and set forth in a separate section of this report following the
index to exhibits.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
In July 1999, we dismissed Barry L. Friedman, Certified Public
Accountant, as our independent auditor and appointed Ernst & Young LLP as
independent auditors. Mr. Friedman had previously audited our financial
statements as of and for the fiscal years ended December 31, 1998, 1997 and
1996. The decision to change independent auditors was approved by our Board of
Directors. During the fiscal year ended December 31, 1998 and through July 1999,
there were no disagreements between us and Mr. Friedman on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which disagreements if not resolved to the satisfaction of
Mr. Friedman would have caused him to make reference to the subject matter of
the disagreement in connection with his reports.
Except for the explanatory paragraph included in Mr. Friedman's report
on our financial statements for the 1998, 1997 and 1996 fiscal years, relating
to substantial doubt existing about our ability to continue as a going concern,
the audit reports of Mr. Friedman on our financial statements as of December 31,
1998, 1997 and 1996 did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
19
<PAGE>
PART III
ITEM 9. DIRECTORS, AND EXECUIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the directors and officers of EntrePort.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David J. D'Arcangelo 44 Chairman of the Board
William A. Shue 43 President, Chief Executive Officer,
Chief Financial Officer, Secretary and
Director
Richard J. Kurtz 33 Senior Vice President - Real Estate Portal
Tony Acone 56 Director
</TABLE>
Mr. D'Arcangelo has served as Chairman of our Board of Directors since
February 17, 1999. From February 17, 1999 to March 21, 1999, Mr. D'Arcangelo
also served as our President and Chief Executive Officer. From 1994 to 1999, Mr.
D'Arcangelo served as President of the D'Arcangelo Companies, a business
marketing and training consulting firm. Mr. D'Arcangelo's book, "Wealth Starts
at Home," published by McGraw-Hill, was released in 1997.
Mr. Shue has served as our President, Chief Executive Officer, Chief
Financial Officer, Secretary and as a director since April 17, 1999. >From 1994
to 1999, Mr. Shue served as an independent consultant to the seminar production
industry. Mr. Shue was a co-founder of Caribiner International, Inc., a
NYSE-listed business communications company, and served as President of
Caribiner International from 1986 to 1993.
Mr. Kurtz has served as our Senior Vice President-Real Estate since
June 22, 1999. From 1994 to 1999, Mr. Kurtz served as President of Resource
Dynamics, a real estate training and development consulting firm.
Mr. Acone has served as a director since November 1999. Mr. Acone was a
co-founder of Prime Ticket Sports Network and served as President of that
company from 1985 to 1989 and Assistant to the Chairman from 1989 to 1994, at
which time Prime Ticket was sold to Fox Sports Television Network. Mr. Acone has
been a private investor since 1994.
20
<PAGE>
Web Portal Advisory Boards
We intend to form advisory boards for each of our Web portals made up
of experts and leading representatives of the industry segment serviced by the
portal. Our initial advisory board dedicated to our real estate portal has been
organized and its initial meeting took place in September 1999. The real estate
advisory board is made up of 14 persons and includes top producing and highly
recognized real estate agents and influential corporate representatives from
real estate software companies, mortgage brokers and title companies.
SECTION 16 (a) FILING
Our officers and directors did not file the Section 16 (a) filing on a
timely basis.
21
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation of Executive Officers. The following table sets forth
the cash compensation paid to the Chief Executive Officer and to all other
executive officers for services rendered during the fiscal years ended December
31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------- -----------------------------
Common Shares All
Other Restricted Underlying Other
Annual Stock Options Granted Compen-
Name and Position Year Salary Bonus Compensation Awards (Shares) sation
- --------------------------- ------------------------------ ------------- ------------ ----------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David J. D'Arcangelo, 1999 $70,833 $ 0 $ 0 $ 0 50,000 $ 0
Chairman (1) 1998 $ 0 $ 0 $ 0 $ 0 -0- $ 0
1997 $ 0 $ 0 $ 0 $ 0 -0- $ 0
William A. Shue, 1999 $62,500 $ 0 $ 0 $ 0 300,000 $ 0
President and CEO (2) 1998 $ 0 $ 0 $ 0 $ 0 -0- $ 0
1997 $ 0 $ 0 $ 0 $ 0 -0- $ 0
Richard Kurtz, Senior 1999 $114,230 $ 0 $ 0 $ 0 300,000 $ 0
Vice President (3) 1998 $ 0 $ 0 $ 0 $ 0 -0- $ 0
1997 $ 0 $ 0 $ 0 $ 0 -0- $ 0
</TABLE>
- ---------------
(1) Commencing March 17, 1999, EntrePort has paid Mr. D'Arcangelo a salary
of $100,000 per year.
(2) Commencing April 17, 1999, EntrePort has paid Mr. Shue a salary of
$100,000 per year.
(3) Commencing June 22, 1999, EntrePort has paid Mr. Kurtz a salary of
$220,000 per year.
22
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in 1999 Fiscal Year
Individual Grants
- -------------------------------------------------------------------------------------------------------------------
Number of
Securities
Underlying % of Total Options/SARs Exercise or
Options/SARs Granted to Employees in Base Price
Name Granted Fiscal Year Per Share Expiration Date
- ------------------------- --------------------- ------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
David J. D'Arcangelo 50,000 3% $1.00 April 1, 2004
Chairman
William Shue 300,000 17% $1.00 April 1, 2004
President and
CEO
Richard Kurtz 300,000 17% 150,000 shares April 1, 2004
Senior Vice President at $2.50;
150,000
shares at
$3.00
</TABLE>
COMPENSATION OF DIRECTORS. All of our directors receive reimbursement
for out-of-pocket expenses for attending Board of Directors meetings. We intend
to appoint additional members to the Board of Directors, including outside or
non-officer members to the board. Any outside directors may receive an
attendance fee for each meeting of the Board of Directors. From time to time we
may engage certain members of the Board of Directors to perform services on
behalf of the Company and will compensate such persons for the services which
they perform.
Limitation of Liability of Directors and Indemnification of Directors and
Officers
The Florida General Corporation Law provides that corporations may
include a provision in their Articles of Incorporation relieving directors of
monetary liability for breach of their fiduciary duty as directors, provided
that such provision shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of a dividend or unlawful stock purchase or redemption, or (iv) for any
transaction from which the director derived an improper personal benefit. Our
Articles of Incorporation provide that directors are not liable to the Company
or its stockholders for monetary damages for breach of their fiduciary duty as
directors to the fullest extent permitted by Florida Law. In addition to the
foregoing, our Bylaws provide that we may indemnify directors, officers,
employees or agents to the fullest extent permitted by law and we have agreed to
provide such indemnification to each of our directors.
23
<PAGE>
The above provisions in EntrePort's Articles of Incorporation and
Bylaws and in the written indemnity agreements may have the effect of reducing
the likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their fiduciary duty, even though such an action, if successful, might
otherwise have benefited us and our stockholders. However, we believe that the
foregoing provisions are necessary to attract and retain qualified persons as
directors.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of EntrePort
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as March 21, 2000 by (i) each person
who is known to be the beneficial owner of more than five percent (5%) of the
issued and outstanding shares of common stock, (ii) each of our directors and
executive officers and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
- ------------------------------------ -------------------------- ---------------------
<S> <C> <C>
David J. D'Arcangelo (2)(3) 2,780,334 24.4%
William A. Shue (2)(4) 1,600,000 14.0%
Richard J. Kurtz (2)(5) 400,000 3.5%
Tony Acone(2)(1) 175,000 1.5%
All officers and directors
as a group (6) 4,955,334 43.4%
</TABLE>
24
<PAGE>
(1) Includes options granted to Mr. Acone to purchase 150,000 shares of
common stock.
(2) Address is 10455 Sorrento Valley Road, Suite 204, San Diego, California
92121.
(3) Includes options granted to Mr. D'Arcangelo to purchase 50,000 shares
of common stock.
(4) Includes options granted to Mr. Shue to purchase 300,000 shares of
common stock.
(5) Includes options granted to Mr. Kurtz to purchase 300,000 shares of
common stock.
(6) Includes options granted to officers and directors to purchase an
aggregate of 800,000 shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company held notes payable totaling $50,000 and $20,000 to David D'Arcangelo
during 1999. The notes were issued to obtain cash for operations and bore
interest at a rate of 8.0% per annum. At March 21,2000 $20,000 remains
outstanding. The outstanding note matures in July 2000.
25
<PAGE>
Item 13a. Exhibits:
Exhibit Number Description of Document
- -------------- -----------------------
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
3.3* Certificate of Amendment of Articles of Incorporation
4.1* Specimen of Common Stock Certificate
10.1* Entreport Corporation 1999 Stock Option Plan
10.2 Securities Purchase Agreement with Metrosplash.com Inc.
10.3 Registration Rights Agreement
16 Letter of Change in Accountants
21.1* List of Subsidiaries
27.1 Financial Data Schedule
* Filed as exhibit to the Registrant's Form 10-SB Filed August 4, 1999.
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of the
fiscal year ended December 31, 1999.
c) Exhibits
26
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENTREPORT CORPORATION,
A Florida Corporation
Dated: March 30, 2000
By:/s/ William A. Shue
-------------------------------------------
William A. Shue, Chief Executive Officer
By:/s/ Ronald D. Suokko
-------------------------------------------
Ronald D. Suokko, Chief Accounting Officer
By:/s/ David J. D'Arcangelo
-------------------------------------------
David J. D'Arcangelo, Chairman of the Board
By:/s/ Tony Acone
-------------------------------------------
Tony Acone, Director
27
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
ENTREPORT CORPORATION
(a development stage company)
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................................F-1
Balance Sheets at December 31, 1999 and 1998...........................................F-2
Statements of Operations for the years ended December 31, 1999, 1998 and for
the period from October 4, 1996 (inception) to December 31, 1999.....................F-3
Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1999, 1998 and for the period from October 4, 1996 (inception)
to December 31, 1999.................................................................F-4
Statements of Cash Flows for the years ended December 31, 1999, 1998 and for
the period from October 4, 1996 (inception) to December 31, 1999.....................F-5
Notes to Financial Statements..........................................................F-6
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
EntrePort Corporation
We have audited the accompanying balance sheets of EntrePort Corporation (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1999 and 1998, and for the period October 4, 1996
(inception) through December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 financial position of EntrePort Corporation (a
development stage company) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998,
and the period October 4, 1996 (inception) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
March 21, 2000
F-1
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Balance Sheets
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,458,139 $ -
Other current assets 205,397 -
-----------------------------
Total current assets 1,663,536 -
Investment in Sportsware Technologies, Inc. 399,500 -
Property and equipment at cost, net 97,317 -
Website development costs 181,381 -
Deferred offering costs 85,194 -
Other assets 6,690 -
-----------------------------
$2,433,618 $ -
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 194,268 $ -
Accrued liabilities 263,399 800
Note payable to officer 20,000 -
-----------------------------
Total current liabilities 477,667 800
Stockholders' equity (deficit):
Common stock, $.001 par value; 50,000,000 shares
authorized, 7,834,974 and 5,025,000 issued and outstanding
at December 31, 1999 and 1998, respectively 7,835 5,025
Additional paid-in capital 3,845,753 -
Deficit accumulated during the development stage (1,897,637) (5,825)
-----------------------------
Total stockholders' equity (deficit) 1,955,951 (800)
-----------------------------
$2,433,618 $ -
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Operations
<CAPTION>
FOR THE PERIOD
OCTOBER 4, 1996
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 11,911 $ - $ 11,911
Operating Expenses:
Research and development 97,579 - 97,579
Marketing, general and administrative 1,796,990 800 1,802,815
---------------------------------------------------------
Total operating expenses 1,894,569 800 1,900,394
---------------------------------------------------------
Loss from operations (1,882,658) (800) (1,888,483)
Interest expense 9,154 - 9,154
---------------------------------------------------------
Net loss $ (1,891,812) $ (800) $ (1,897,637)
=========================================================
Net loss per common share
(basic and diluted) $ (0.31) $ -
======================================
Weighted average shares used in computing
net loss per common share
(basic and diluted) 6,068,605 5,025,000
======================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998, and the period October
4, 1996 (inception) through December 31, 1999
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
---------------------------------- PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for services at
inception of company 5,025,000 $ 5,025 - - $ 5,025
Net loss for the period ended December 31,
1997 - - - (5,025) (5,025)
------------------------------------------------------------------------------------
Balance at December 31, 1997 5,025,000 5,025 - (5,025) -
Net loss for the year ended December 31,
1998 - - - (800) (800)
------------------------------------------------------------------------------------
Balance at December 31, 1998 5,025,000 5,025 - (5,825) (800)
Common shares retired for no consideration (4,410,000) (4,410) 4,410 - -
Common shares issued for $1,600 of notes
receivable and $335,900 for services
rendered 5,400,000 5,400 332,100 - 337,500
Issuance of common stock upon conversion
of notes payable in June 1999 at $2.00
to $3.00 per share 267,500 268 694,732 - 695,000
Issuance of common stock for $2.00 per share
in August and December 1999 for
cash, net of issuance costs of $304,185 1,384,140 1,384 2,462,711 - 2,464,095
Issuance of common stock for services
rendered 168,334 168 336,500 - 336,668
Issuance of warrants for services rendered - - 15,300 - 15,300
Net loss for the year ended December 31,
1999 - - - (1,891,812) (1,891,812)
------------------------------------------------------------------------------------
Balance at December 31, 1999 7,834,974 $ 7,835 $3,845,753 $(1,897,637) $1,955,951
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
F-4
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Cash Flows
<CAPTION>
FOR THE PERIOD
OCTOBER 4,1996
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,891,812) $ (800) $ (1,897,637)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 17,419 - 17,419
Issuance of common stock and warrants for services 421,200 - 426,225
rendered
Changes in operating assets and liabilities: - - -
Other current assets (205,397) - (205,397)
Accounts payable 194,268 - 194,268
Accrued liabilities and other 262,599 800 263,399
Other assets (6,690) - (6,690)
----------------------------------------------------
Net cash flows used in operating activities (1,208,413) - (1,208,413)
INVESTING ACTIVITIES
Purchases of property and equipment (114,736) - (114,736)
Investment in Sportsware Technologies, Inc. (399,500) - (399,500)
Increases in website development costs (181,381) - (181,381)
----------------------------------------------------
Net cash flows used in investing activities (695,617) - (695,617)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 1,010,000 - 1,010,000
Payments of notes payable (295,000) - (295,000)
Issuance of common stock for cash, net 2,732,363 - 2,732,363
Increases in deferred offering costs (85,194) - (85,194)
----------------------------------------------------
Net cash flows provided by financing activities 3,362,169 - 3,362,169
----------------------------------------------------
Increase in cash and cash equivalents 1,458,139 - 1,458,139
Cash and cash equivalents at beginning of period - - -
----------------------------------------------------
Cash and cash equivalents at end of period $ 1,458,139 $ - $ 1,458,139
====================================================
SUPPLEMENTAL DISCLOSURE OF NON CASH
FINANCING ACTIVITIES
Conversion of notes payable to common stock $ (695,000) $ - $ (695,000)
====================================================
SUPPLEMENTAL INFORMATION
Interest paid $ 5,081 $ - $ 5,081
====================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
EntrePort Corporation ("the Company") was incorporated in Florida on October 4,
1996. The Company is in the initial stage of operations devoting substantially
all of its efforts to the market analysis for and development of Web portals on
the Internet for purposes of offering general information, communication tools
and training to members of certain targeted Internet communities. As of December
31, 1999, the Company has not completed the development of any of its proposed
Web portals or otherwise commenced significant revenue producing operations.
Accordingly, the Company is considered to be in the development stage.
The Company had no assets or operations from the time of its incorporation until
February 1999, at which time the Company hired its current Chairman of the Board
to develop the Company's Web business. At this time, the Company's founder
canceled, for no consideration, 4,410,000 shares of Common Stock and resigned
from the Company. The Company then issued 3,800,000 shares of Common Stock, as
consideration of marketing and business plans, consulting services and cash.
REVENUE RECOGNITION
The Company recognizes revenue on membership fees ratably over the period in
which the services are performed.
F-6
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents. Cash equivalents primarily
represent funds invested in money market funds where cost equals market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciated over the estimated
useful lives of the assets (generally three to five years) using the
straight-line method.
WEBSITE DEVELOPMENT COSTS
Website development costs are capitalized in accordance with an EITF consensus
on Issue 00-02 and amortized over the estimated useful lives of the Internet
website being developed (generally two years) using the straight-line method.
Amortization will begin upon the launch of the web site.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed in Note 6,
the alternative fair value accounting provided under Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK BASED COMPENSATION, requires the use of option valuation
models that were not developed for use in valuing employee stock options.
Compensation charges for options granted to non-employees has been determined in
accordance with SFAS No. 123 and EITF 96-18 as the fair value of the
consideration received or the fair value of equity instruments issued, whichever
is more reliably measured. Charges for options granted to non-employees are
periodically remeasured as the underlying options vest.
The Company has disclosed the pro forma effect of using the fair value based
method to account for its employee stock-based compensation.
F-7
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
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 years ended
December 31, 1999 because the effect would be anti-dilutive.
F-8
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted loss per
share for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (1,891,812) $ (800)
Denominator:
Weighted average shares outstanding for basic
earning per share 6,068,605 5,025,000
------------------------------------
Effects of dilutive securities:
Employee stock options - -
Warrants - -
------------------------------------
Dilutive potential common shares - -
Shares used in computing diluted net income per
common share 6,068,605 5,025,000
====================================
Loss per common share, basic $ (0.31) $ -
====================================
Loss per common share, diluted $ (0.31) $ -
====================================
</TABLE>
COMPREHENSIVE LOSS
Comprehensive loss for all periods presented is the same as net loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
F-9
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
2. SELECTED BALANCE SHEET DETAILS
DECEMBER 31,
1999 1998
-------------- --------------
Other current assets:
Due from investors $ 180,000 $ -
Prepaid expenses 21,731 -
Other current assets 3,666 -
-------------- --------------
$ 205,397 $ -
============== ==============
The amount due from investors was collected in January 2000.
Property and equipment:
Machinery and equipment $ 106,509 $ -
Furniture and fixtures 8,227 -
-------------- --------------
114,736 -
Less: accumulated depreciation (17,419) -
-------------- --------------
$ 97,317 $ -
============== ==============
Accrued liabilities:
Officer relocation costs $ 106,600 $ -
Lease termination costs 61,058 -
Accrued settlement 37,500 -
Other accrued liabilities 58,241 800
-------------- --------------
$ 263,399 $ 800
============== ==============
3. EQUITY INVESTMENT
During 1999, the Company acquired a 5% share of Sportsware Technologies, Inc.
("STI") for cash totaling $399,500. The Company accounts for its investment in
STI under the cost method. In conjunction with the purchase, the Company was
granted an option through December 1999 to purchase all of the remaining
outstanding shares of STI for cash and common stock. The option was not
exercised by the Company and expired in December 1999. The Company also granted
stock options to STI to purchase 500,000 shares of the Company's common stock
for $.10 per share, vesting and exercisable only in the event the Company
purchased the remaining 95% of STI stock. These options were canceled in
December 1999 upon expiration of the purchase option.
F-10
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
4. NOTES PAYABLE
Throughout 1999, the Company issued notes payable totaling $315,000 to several
outside parties and one of the Company's officers. The notes bore interest at
rates ranging from 6.0% to 10.0% per annum. Each note was paid off prior to
December 31, 1999 with the exception of one note. The outstanding note of
$20,000 bears a rate of 8.0% and matures in July 2000.
Throughout 1999, the Company conducted a private placement sale of convertible
notes for total proceeds of $695,000. The notes bore interest at the rate of
6.0% per annum. Principal was convertible into shares of the Company's common
stock at rates of $2.00 to $3.00 per share. During 1999, the principal amount of
all notes was converted into 267,500 shares of common stock.
5. LEASE COMMITMENTS
The Company leases its corporate headquarters facility under a noncancelable
operating lease expiring on March 31, 2002. The Company also leases an unrelated
property on a month to month basis. Rent expense for these leases was
approximately $45,000, $0 and $45,000 for the years ended December 31, 1999 and
1998, and for the period October 4, 1996 (inception) through December 31, 1999,
respectively.
Future minimum payments required under the operating lease as of December 31,
1999 are as follows:
OPERATING
LEASES
----------------
2000 $ 26,800
2001 33,400
2002 10,000
----------------
Total minimum lease payments $ 70,200
================
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In February 1999, the Company retired 4,410,000 shares of the Company's stock
from the original founder of the Company, for no consideration. Additionally, in
March 1999 the Company issued 5,400,000 shares of common stock to various
initial investors and key employees for cash and services.
F-11
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
In September 1999, the Company sold 99,710 shares of common stock for cash
proceeds of $199,420 in a private placement. In June 1999, the Company issued
267,500 shares of common stock, as a result of the conversion of convertible
notes. In December 1999, the Company issued 1,284,430 shares in a private
placement for cash proceeds of $2,568,860. The Company incurred $38,185 in
offering costs, and issued 133,334 shares of common stock to a financial
consultant in connection with the private placement (valued at $266,668). These
costs have been charged as a reduction to additional paid-in capital.
In November 1999, the Company issued 25,000 shares of common stock in
consideration for the extension of two notes payable. In December 1999, the
Company also issued 10,000 shares of common stock for Website development
services rendered. The Company expensed the costs of these services.
COMMON STOCK WARRANTS
Periodically, the Company will issue warrants to outside consultants in lieu of
stock options. During the period October 4, 1996 (inception) through December
31, 1999, the Company issued 10,000 warrants at a $1.00 exercise price. The
warrants are exercisable at December 31, 1999 and expire in October 2002. During
the year ended December 31, 1999, the Company recognized $15,300 in compensation
expense for these services.
STOCK OPTIONS
In March 1999, the Company adopted the 1999 Stock Incentive Plan (the "Plan") to
grant options to purchase common stock to eligible officers, employees,
directors, consultants and other independent advisors who provide services to
the Company. The Board has authorized and reserved an aggregate of 4,000,000
shares of common stock for issuance under the Plan. Terms of the stock option
agreements, including vesting requirements, are determined by the Board of
Directors. Options under the Plan cannot exceed a ten year term. The exercise
price of options granted under the Plan is determined by the Board, but cannot
be less than 100% of the fair market value (85% for non-qualified options) of
the common stock on the date of grant.
F-12
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes activity under the stock option plan during the
year ended December 31, 1999:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------------
Outstanding at December 31, 1998 - $ -
Granted 1,810,000 $ 1.69
Exercised - $ -
Canceled (500,000) $ 0.10
-----------------
Outstanding at December 31, 1999 1,310,000 $ 2.30
=================
All options outstanding at December 31, 1999 are non-qualified options. The
weighted average grant date fair value of options granted during the year
totaled $1.49.
A further summary of options outstanding and exercisable as of December 31, 1999
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
EXERCISE EXERCISE AVERAGE AVERAGE AVERAGE
OPTIONS RANGE RANGE EXERCISE REMAINING OPTIONS EXERCISE
OUTSTANDING LOW HIGH PRICE LIFE (YEARS) EXERCISABLE PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
350,000 $1.00 $1.00 $1.00 4.3 350,000 $1.00
450,000 $2.00 $2.50 $2.22 3.8 75,000 $2.00
450,000 $3.00 $3.50 $3.11 4.3 - -
40,000 $4.00 $4.00 $4.00 2.9 - -
20,000 $5.00 $5.00 $5.00 2.8 20,000 $5.00
- -----------------------------------------------------------------------------------------------------------
1,310,000 $1.00 $5.00 $2.30 4.0 445,000 $1.35
===========================================================================================================
</TABLE>
Adjusted pro forma information regarding net loss is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes method with
the following weighted-average assumptions for 1999: risk-free interest rate of
6.5%, dividend yield of 0%, volatility factor of 100.0%, and an expected option
life of 3 years. Future pro forma results of operations under SFAS No. 123 may
be materially different from actual amounts reported. For purposes of adjusted
pro forma disclosures, the estimated fair value of the options are amortized to
expense over the vesting period.
F-13
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that 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
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.
F-14
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of such options. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 4, 1996
(INCEPTION)
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
-----------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $ (1,984,329) $ (800) $ (1,990,154)
Pro forma net loss per share, basic and diluted $ (0.33) $ -
</TABLE>
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock are reserved for future issuance at
December 31, 1999:
SHARES
-----------------
Stock options:
Granted and outstanding 1,310,000
Reserved for future grants 2,690,000
Warrants 10,000
-----------------
Total Reserved 4,010,000
=================
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December 31,
1999 and 1998 are shown below. A valuation allowance of $776,000 has been
recognized at December 31, 1999 to offset the net deferred tax assets as
realization of such assets is uncertain.
F-15
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 760,000 -
Research and development credits 11,000 -
Other, net 5,000 -
----------------------------------
Total net deferred tax assets 776,000 -
Valuation allowance for deferred tax asset (776,000) -
----------------------------------
Net deferred tax assets $ - -
==================================
</TABLE>
At December 31, 1999, the Company has federal and California net operating loss
carryforwards of approximately $1,865,000 and $1,869,000, respectively. The
federal and California tax loss carryforwards will begin to expire in 2019 and
2007, respectively, unless previously utilized. The Company also has federal and
California research credit carryforwards of approximately $8,700 and $4,800,
respectively, which will begin to expire in 2018 unless previously utilized.
F-16
<PAGE>
EntrePort Corporation
(a development stage company)
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Pursuant to Section 382 and 383 of the Internal Revenue Code, the annual use of
the Company's net operating loss and credit carryforwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period. However, the Company does not believe such limitation will have a
material impact upon the utilization of these carryforwards.
8. LITIGATION
From time to time the Company is involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Management believes,
however, that the ultimate outcome of all pending litigation should not have a
material adverse effect on the Company's financial position or liquidity.
9. SUBSEQUENT EVENT
In March 2000, 3,537,500 shares of common stock were issued at $2.00 per share
to private investors for net proceeds of approximately $6.1 million. In
conjunction with the offering, warrants to purchase 353,750 shares of the
Company's common stock were issued to the placement agent. The exercise price is
$2.00 per share and the warrants expire in March 2005.
F-17
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into on
March 16, 2000 by and between METROSPLASH.COM, INC., a Delaware corporation
("Buyer") and ENTREPORT CORPORATION, a Florida corporation ("Seller").
R E C I T A L S
---------------
A. Seller owns all of the issued and outstanding capital shares
("Shares") of ERT1 Inc., a Delaware corporation ("ERT1").
B. Seller wishes to sell, and Buyer wishes to acquire, all of the
Shares on the Closing Date (as defined below), in exchange for Buyer's issuance
of 100,000 shares ("Buyer Shares") of the $.002 par value common stock ("Buyer
Common Stock") of Buyer to Seller, subject to and upon the terms and conditions
hereinafter set forth.
A G R E E M E N T
-----------------
It is agreed as follows:
1. SECURITIES PURCHASE.
1.1 SALE OF SECURITIES. Subject to the terms and upon the
conditions set forth herein, Seller agrees to sell, assign, transfer and deliver
to Buyer, and Buyer agrees to purchase from Seller, at the Closing, the Shares
in consideration of Buyer's issuance of the Buyer Shares to Seller.
1.2 INSTRUMENTS OF TRANSFER.
(a) SHARES. The Seller shall deliver to Buyer at the
Closing certificates representing the Shares, along with duly executed stock
powers, in form and substance satisfactory to Buyer in order to vest in Buyer
all of Seller's right, title and interest in and to the Shares. From time to
time after the Closing Date, and without further consideration, Seller will
execute and deliver such other instruments of transfer and take such other
actions as Buyer may reasonably request in order to more effectively transfer to
Buyer the securities intended to be transferred hereunder.
(b) BUYER SHARES. Buyer shall deliver to Seller at
the Closing certificates representing the Buyer Shares, in form and substance
satisfactory to Seller, in order to effectively vest in Seller all right, title
and interest in and to the Buyer Shares. From time to time after the Closing
Date, and without further consideration, Buyer will execute and deliver such
other instruments and take such other actions as Seller may reasonably request
in order to more effectively issue to them the Buyer Shares.
1.3 CLOSING. The closing ("Closing") of the transaction under
this Agreement shall take place at the offices of Seller located at 10455
Sorrento Valley Road, Suite 204, San Diego, California 92121 at 10 a.m., local
time, on March ___, 2000, or at such other time and place as may be agreed to by
Seller and Buyer ("Closing Date").
-1-
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
represents, warrants and covenants to and with Buyer as follows:
2.1 POWER AND AUTHORITY. Seller has all requisite corporate
power and authority to enter into and to carry out all of the terms of this
Agreement and all other documents executed and delivered in connection herewith.
All corporate action on the part of Seller necessary for the authorization,
execution, delivery and performance of the Agreement by the Seller has been
taken and no further authorization on the part of Seller is required to
consummate the transactions provided for under this Agreement. When executed and
delivered by Seller, this Agreement shall constitute the valid and legally
binding obligation of Seller enforceable in accordance with its respective
terms.
2.2 OWNERSHIP OF AND TITLE TO SECURITIES. Seller represents
that Seller is the sole owner of the Shares, the Shares represent all of the
issued and outstanding capital shares of ERT1 and there are no warrants,
options, subscriptions, calls, or other similar rights of any kind for the
purchase of any securities of ERT1 by Seller or any other persons. Seller
represents that the Shares are duly authorized and have been validly issued,
fully paid and are nonassessable. Seller represents that Seller has and will
transfer to Buyer good and marketable title to the Shares, free and clear of all
pledges, security interests, mortgages, liens, claims, charges, restrictions or
encumbrances, except for any restrictions on resale of the Shares under
applicable federal and state securities laws.
2.3 ORGANIZATION AND GOOD STANDING. ERT1 is a company duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and is a duly qualified to do business and is in good standing as a
foreign company under the laws of each jurisdiction in which the character or
location of the assets owned or leased by it require qualification, except where
the failure to so qualify would not materially adversely affect the business or
condition, financial or otherwise, of ERT1. ERT1 has delivered or prior to the
Closing Date will deliver to Buyer complete and correct copies of its charter
documents, as amended, certified by an appropriate representative of ERT1 to be
complete and correct. ERT1 has no subsidiaries or equity ownership in any other
entities.
2.4 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION. There
are no orders of any court or administrative agency in effect which restrains or
prohibits ERT1 or Seller from consummating the transactions contemplated hereby,
and no suit, action, investigation, inquiry or proceeding by any governmental
body or other person or legal or administrative proceeding has been instituted
or threatened which questions the validity or legality of Seller's consummation
of the transactions contemplated hereby.
2.5 APPROVALS AND CONSENTS. There are no permits, consents,
mandates or approvals of public authorities, either federal, state or local, or
of any third party necessary for the Seller's consummation of the transactions
contemplated hereby.
-2-
<PAGE>
2.6 CONTRACTS AND AGREEMENTS. Other than the Employment
Agreement ("Yancey Agreement") dated April 2, 1999 between Seller and Kym
Yancey, which was later assumed by ERT1, there are no contracts or agreements to
which ERT1 is a party or by which it is bound.
2.7 ASSETS. ERT1 Disclosure Schedule attached hereto as
Exhibit A ("ERT1 Disclosure Schedule") sets forth all assets of ERT1, including
all intellectual property. ERT1 has not licensed, assigned or otherwise granted
to a third party any rights of use to any such assets.
2.8 ABSENCE OF LIABILITIES. Except for its obligations under
the Yancey Agreement, ERT1 has no liabilities or commitments, fixed or
contingent, which in the aggregate are in excess of $1,000.
2.9 TAX MATTERS. ERT1 has timely filed all tax returns and all
information returns and reports required to be filed by or with respect to it
under the laws of its jurisdiction for all periods ending on or prior to the
date hereof and will timely file all such returns and reports required to be
filed from the date hereof through the Closing Date. ERT1 has paid all taxes
which have become due or payable, and will pay on or prior to the Closing Date
all taxes which have become due or payable on or prior to the Closing Date.
Following the Closing Date, Seller shall agree to cooperate with Buyer in
connection with the preparation of any tax returns due or payable following the
Closing Date.
2.10 INVESTMENT AND RELATED REPRESENTATIONS.
2.10.1 BUYER SHARES AS "RESTRICTED" SECURITIES.
Seller is aware that neither the Buyer Shares nor the offer or sale thereof to
the Seller has been registered under the Securities Act of 1933, as amended
("Securities Act"), or under any state securities law. Seller further
understands that no registration statement has been filed with the Securities
and Exchange Commission ("SEC"), nor with any other state regulatory authority
and that, as a result, any benefit which might normally accrue to an investor
such as Seller by an impartial review of such a registration statement by the
SEC or other regulatory commission will not be forthcoming. Seller acknowledges
that the Buyer Shares will be characterized as "restricted" securities under
federal securities laws inasmuch as they are being acquired in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances. Seller represents that Seller is familiar in
general with Rule 144 under the Securities Act (which provides generally for a
one year holding period and limitations on the amount of "restricted" securities
that can be publicly resold in compliance with the rule upon completion of the
holding period), and understands the resale limitations imposed thereby and by
the Securities Act. Seller agrees that Seller will not sell any portion of Buyer
Shares except in accordance with an available exemption from registration under
the Securities Act. Seller understands that the certificate for the Buyer Shares
issued to Seller or to any subsequent transferee shall be stamped or otherwise
imprinted with an appropriate legend summarizing the restrictions described in
this Section 2.10.1 and that Buyer shall refuse to transfer the Buyer Shares
except in accordance with such restrictions, such legend to be substantially as
follows:
-3-
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
SUCH SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION, IN EACH CASE AS CONFIRMED IN AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND IN EACH CASE IN
ACCORDANCE WITH ANY OTHER APPLICABLE LAW.
2.10.2 INVESTMENT REPRESENTATION. This Agreement is
made with Seller in reliance upon Seller's representation, which by Seller's
execution of this Agreement Seller hereby confirms, that the Buyer Shares to be
received by Seller are being acquired pursuant to this Agreement for investment
and not with a view to the public resale or distribution thereof unless pursuant
to an effective registration statement or exemption under the Securities Act.
2.10.3 NO PUBLIC SOLICITATION. Seller is acquiring
the Buyer Shares after private negotiation and has not been attracted to the
acquisition of the Buyer Shares by any press release, advertising or
publication.
2.11 MARKET STANDOFF AGREEMENT. Seller shall agree to
execute a Market Standoff Agreement in the form attached hereto as Exhibit C
which restricts the sale of the Buyer Shares during the 180 day period
immediately following an underwritten registered public offering of the
securities of Buyer. Seller understands that the certificate for the Buyer
Shares issued to Seller or to any subsequent transferee shall be stamped or
otherwise imprinted with an appropriate legend summarizing the restrictions
described in this Section 2.11 in substantially the form set forth in the Market
Standoff Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. Buyer
represents, warrants and covenants to and with Seller as follows:
3.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power and authority to enter into and
perform its obligations under this Agreement. Buyer is the ultimate parent in
its corporate group and there is no corporation, partnership or any other entity
that owns in excess of twenty percent (20%) of the outstanding capital shares of
Buyer on a fully diluted basis.
3.2 CAPITALIZATION. The authorized capital stock of Buyer
consists of 44,000,000 shares of Buyer Common Stock, of which 12,127,067 shares
are issued and outstanding as of the date of this Agreement and 6,000,000 shares
of preferred stock of which 5,500,000 shares are issued and outstanding as of
the date of this Agreement. All outstanding shares of Buyer Common Stock have
been duly authorized and validly issued, and are fully paid, nonassessable, and
free of any preemptive rights. Except as disclosed on the Buyer Disclosure
Schedule attached hereto as Exhibit B ("Buyer Disclosure Schedule"), there are
no warrants, options, subscriptions, calls, or other similar rights of any kind
outstanding for the purchase of any securities of Buyer.
-4-
<PAGE>
3.3 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION. Buyer
represents that no order of any court or administrative agency is in effect
which restrains or prohibits Buyer from consummating the transactions
contemplated hereby, and no suit, action, investigation, inquiry or proceeding
by any governmental body or other person or legal or administrative proceeding
has been instituted or threatened which questions the validity or legality of
Buyer's consummation of the transactions contemplated hereby.
3.4 VALIDITY OF TRANSACTIONS. This Agreement, and each
document executed and delivered by Buyer in connection with the transactions
contemplated by this Agreement, and the performance of the transactions
contemplated therein have been duly authorized, executed and delivered by Buyer
and is each the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency reorganization and moratorium laws and other laws affecting
enforcement of creditor's rights generally and by general principles of equity.
The Buyer Shares issuable hereunder, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The Buyer Shares will be free of any liens or encumbrances,
except for any restrictions on resale imposed by federal or state securities
laws.
3.5 APPROVALS AND CONSENTS. Buyer represents that there are no
permits, consents, mandates or approvals of public authorities, either federal,
state or local, or of any third party necessary for Buyer's consummation of the
transactions contemplated hereby.
3.6 FINANCIAL STATEMENTS; DISCLOSURE PACKAGE. Buyer has
furnished to Seller its unaudited consolidated balance sheet as of the end of
its fiscal year ended December 31, 1999 and its unaudited consolidated
statements of earnings, shareholders' equity and cash flows for the fiscal year
ended December 31, 1999, together with appropriate notes to such unaudited
consolidated financial statements.
All of the foregoing unaudited consolidated financial
statements (collectively, the "Buyer Financial Statements"), including in each
case the related notes, have been prepared in conformity with generally accepted
accounting principles consistently applied and are correct and complete in all
material respects and such consolidated financial statements fairly present the
financial position of Buyer as of the dates of such balance sheets and the
results of operations for the respective periods indicated.
Buyer represents that it has delivered to Seller its Executive
Summary. The information in the Executive Summary, taken as a whole, is true and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Buyer acknowledges that Seller is entering into this Agreement
based, in part, on Buyer's intention to pursue a public offering of its Common
Stock. Buyer hereby confirms such intent, without expressing any assurance or
likelihood that an initial public offering will take place or otherwise
committing itself to the transaction.
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<PAGE>
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Buyer has no material
liabilities, fixed or contingent, other than (i) liabilities fully reflected in
the Buyer Financial Statements, or (ii) liabilities incurred since December 31,
1999 in the ordinary course of business or as contemplated or permitted by this
Agreement, all of which in the aggregate, taking into consideration all other
changes in the financial condition of Buyer in the ordinary course of business,
have had no material adverse effect on the financial position or results of
operations of Buyer or on the conduct of its businesses.
3.8 ABSENCE OF ADVERSE CHANGES. Except as disclosed in the
Buyer Financial Statements or the Buyer Disclosure Schedule, since December 31,
1999, there has not been any material adverse change in the assets or
liabilities or in the condition, financial or otherwise, or business,
properties, earnings or net worth of Buyer, or (ii) any damage or destruction in
the nature of a casualty loss, whether covered by insurance or not, materially
and adversely affecting any property or business of Buyer which is material to
the consolidated financial condition, operation or business of Buyer.
3.9 OTHER INFORMATION. No portion of this Agreement, any
Schedule or Exhibit attached hereto or any other document furnished or to be
furnished by Buyer or any of its authorized representatives to Seller or any of
their authorized representatives is false or misleading or omits to state a fact
required to be stated therein in order to make any of the statements therein not
misleading in light of the circumstances under which they were made. There is no
fact known to Buyer which adversely affects or in the future is likely to
adversely affect Buyer which has not been described or set forth or referred to
in this Agreement, any Schedule or Exhibit hereto or any other document.
4. MISCELLANEOUS.
4.1 CUMULATIVE REMEDIES. Any person having any rights under
any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement, and to exercise all other rights granted by law, which rights
may be exercised cumulative and not alternatively.
4.2 SUCCESSORS AND ASSIGNS. The rights and obligations of the
parties under this Agreement shall not be assignable without the written consent
of the parties, on the other and any such purported assignment without their
written consent shall be void ab initio. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
4.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement or the other documents.
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<PAGE>
4.4 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts when taken together will constitute one and
the same agreement.
4.5 NOTICES. Any approvals, consents or notices required or
permitted to be sent or given shall be delivered in writing personally or
mailed, certified mail, return receipt requested, to the following addresses and
shall be deemed to have been received within five days after such mailing:
If to Buyer: MetroSplash.com, Inc.
2350 Airport Freeway, Suite 150
Bedford, Texas 76022
Attn: Christopher J. Daly,
President and Chief Executive Officer
with a copy to:
William C. Meier
Central Park Tower
2350 Airport Freeway, Suite 660
Bedford, Texas 76022
If to Seller: EntrePort Corporation
10455 Sorrento Valley Road, Suite 204
San Diego, California 92121
Attn: William A. Shue, Chief Executive
Officer
5.7 SCHEDULES AND EXHIBITS. All schedules and exhibits are an
integral part of this Agreement.
5.8 LITIGATION COSTS. If any legal action or any arbitration
or other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default, or misrepresentation in connection with
any of the provisions thereof, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
5.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
thereof, and supersedes all prior and contemporaneous agreements and
understandings.
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<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
or caused this Agreement to be executed as of the date first above written.
"BUYER"
METROSPLASH.COM, INC.
a Delaware corporation
By: /S/ Christopher J. Daly
---------------------------
Christopher J. Daly,
President and Chief Executive Officer
"SELLER
ENTREPORT CORPORATION,
a Florida corporation
By: /S/ William A. Shue
-----------------------
William A. Shue, Chief Executive Officer
-8-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF ASSETS
------------------
1. The ERT1.com logo
2. The ERT1.com slogan: "The Success Engine for Men and Women of "Color"
3. The ERT1.com letterhead including the logo and faces of various
individuals
4. The ERT1.com business card including logo
5. The entire ERT1.com internet website
6. A four color brochure including the ERT1.com logo
7. All other intellectual property including any and all software, source
and object codes, copyrights, patents and trade secrets relating to the
ERT1.com internet website, including the right to sue for any past
infringement of any intellectual property rights.
8. The following domain names: The following domain names: ERT1.com,
ERT1.net, ERTOne.com, ERTOne.net, RainbowDating.com, RainbowDating.net,
SingleBlackMom.com, and SingleBlackMom.net.
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<PAGE>
EXHIBIT B
- ---------
BUYER DISCLOSURE SCHEDULE
-------------------------
-10-
ENTREPORT CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights
Agreement") is entered into effective as of January 10, 2000, by and among
ENTREPORT CORPORATION, a Florida corporation (the "Company"), and the purchasers
of shares of Common Stock of the Company (the "Shares") who are identified as
"Investors" in that certain Common Stock Purchase Agreement of even date
herewith (the "Purchase Agreement") and whose signatures appear on the execution
pages hereof. The purchasers of the Shares shall be referred to hereinafter as
the "Investors" and each individually as an "Investor."
RECITALS
WHEREAS, the Company proposes to sell the Shares pursuant to the
Purchase Agreement;
WHEREAS, as a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them certain registration
rights and other rights as set forth below; and
WHEREAS, as a condition of the Closing under the Purchase Agreement,
the Company shall file a registration statement with the Securities and Exchange
Commission relating to the Shares as soon as practicable after the Closing, but
in no event more than thirty (30) days after the Closing, under the Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Registration Rights Agreement and in the Purchase Agreement, the parties
mutually agree as follows:
1. DEFINITIONS
As used in this Registration Rights Agreement the following terms shall
have the following respective meanings:
"CLOSING" has the meaning ascribed thereto under the Purchase
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM SB-2" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC.
"HOLDER" means any Investor or assignee permitted in accordance with
4.3 hereof owning of record Registrable Securities that have not been sold to
the public.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
<PAGE>
"REGISTRABLE SECURITIES" means the Shares.
"REGISTRATION STATEMENT" means any registration statement of the
Company that covers the Shares pursuant to the provisions of this Registration
Rights Agreement, including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference or deemed to be incorporated by reference
therein.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
2. REGISTRATION OF SHARES
2.1 REGISTRATION STATEMENT. Concurrent with the Closing, the
Company shall prepare and file with the Commission a Registration Statement on
Form SB-2 pursuant to Rule 415 under the Securities Act. In addition, the
Company shall:
(a) Use its best efforts to cause such Registration
Statement to become effective at the earliest possible time and to keep such
Registration Statement continuously effective for a period of two years
following the date on which the Registration Statement becomes effective under
the Securities Act, or such shorter period ending on the earlier of (i) when all
Registrable Securities covered by this Registration Statement have been sold or
(ii) when all Registrable Securities covered by the Registration Statement may
be sold without registration under the Securities Act pursuant to the exemptions
provided by Rule 144 under the Securities Act (and are not restricted as to
volume) (the "Registration Period"); provided, however, that the Company shall
not be deemed to have kept a Registration Statement effective during the
applicable period if it voluntarily takes any action that results in Holders not
being able to sell such Registrable Securities pursuant to applicable securities
laws during that period (and the time period during which such Registration
Statement is required to remain effective hereunder shall be extended by the
number of days during which such Holders are not able to sell Registrable
Securities) unless such action is required under applicable law or regulation or
court order.
(b) Prepare and file with the SEC such pre-effective
and post-effective amendments and supplements to such Registration Statement and
the prospectus used in connection with such Registration Statement as may be
necessary to cause the Registration Statement to become effective, to keep the
Registration Statement continuously effective during the Registration Period and
not misleading, and as may otherwise be required or applicable under, and to
comply with the provisions of, the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during the
Registration Period.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, and each amendment or supplement
thereto, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be necessary to permit the sale of
the Registrable Securities.
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<PAGE>
(e) Notify promptly the Holders of Registrable
Securities to be sold, (and in the case of (i)(A) in no event less than two
business days prior to such filing) and (if requested by any such Person)
confirm such notice in writing, (i)(A) when a prospectus or any prospectus
supplement or post-effective amendment is proposed to be filed, and, (B) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other federal,
Canadian, state or provincial governmental authority for amendments or
supplements to a Registration Statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, and (v) of the
happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement, prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
not misleading, and that in the case of the prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) Use its reasonable best efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of, any order suspending the
effectiveness of a Registration Statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(g) If requested by the holders of a majority of the
Registrable Securities being sold in connection with such offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the holders reasonably request should be included therein
regarding such holders or the plan of distribution of the Registrable
Securities, and (ii) make all required filings of the prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of such matters to be incorporated in such prospectus
supplement or post-effective amendment: provided, however, that the Company
shall not be required to take any action pursuant to this Section 2.1(g) that
would, in the opinion of outside counsel for the Company, violate applicable
law.
(h) Upon the occurrence of any event contemplated by
Section 2.1(e)(v), as promptly as practicable, prepare a supplement or
amendment, including a post-effective amendment, to each Registration Statement
or a supplement to the related prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(i) Use its reasonable best efforts to cause all
Registrable Securities relating to such Registration Statement to be listed on
each securities exchange or automated quotation system, if any, on which similar
securities issued by the Company are then listed.
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<PAGE>
2.2 SELLER INFORMATION. The Company may require each selling
Holder of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition as the
Company may from time to time reasonably request; provided that such information
shall be used only in connection with such registration.
If the Registration Statement refers to any Holder by name or otherwise
as the Holder of any securities of the Company, then such Holder shall promptly
(i) notify the Company and its counsel of the existence of any fact of which
such Holder becomes aware and the happening of any event which relates to Holder
or the distribution of the securities owned by such Holder which results in the
Registration Statement containing an untrue statement of material fact or
omitting to state a material fact required to be stated therein or necessary to
make any statements therein not misleading, or the Prospectus included in such
Registration Statement containing an untrue statement of material fact or
omitting to state a material fact required to be stated therein or necessary to
make any statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) provide to the Company such information which
relates to Holder or the distribution of the securities owned by such Holder as
shall be necessary to enable the Company to prepare a supplement or
post-effective amendment to such Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other documents
required so that such Registration Statement will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
such Prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.3 NOTICE TO DISCONTINUE. Each holder of Registrable
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 2.1(e)(ii) through (v),
such Holder shall forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 2.1(h) and, if so directed by the Company,
such Holder shall deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such Holder's possession of the
Prospectus covering such Registrable Securities which is current at the time of
receipt of such notice. If the Company shall give any such notice, the Company
shall extend the period during which such Registration Statement shall be
maintained effective pursuant to this Registration Rights Agreement by the
number of days in excess of ten (10) business days during the period from and
including the date of the giving of such notice pursuant to Section 2.1(e) to
and including the date when the Holder shall have received the copies of the
supplemented or amended prospectus.
2.4 EXPENSES OF REGISTRATION. Except only as specifically
provided herein, all expenses incident to the performance of compliance with
this Registration Rights Agreement by the Company shall be borne by the Company,
regardless of whether the Registration Statement becomes effective, including,
without limitation, (i) all registration and filing fees and expenses (including
filings made with the National Association of Securities Dealers ("NASD"), if
applicable); (ii) fees and expenses (including fees and expenses of counsel) of
compliance with federal securities and state Blue Sky and other Canadian,
provincial or other securities laws; (iii) expenses of printing, messenger and
delivery services, duplication, word processing and telephone incurred by the
Company (but not by the holders of Registrable Securities); (iv) fees and
-4-
<PAGE>
disbursements of counsel for the Company; (v) all application and filing fees in
connection with listing the Class A Common Stock on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance). The Company will, in any
event, bear its own internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Company.
2.5 INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. To the extent
permitted by law, the Company will indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal, Canadian, provincial or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any amendments or supplements thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (including any
preliminary, final or summary prospectus, amendment or supplement thereto)
included in such Registration Statement or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make any
statement therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any Canadian, provincial or state securities
law or any rule or regulation promulgated under the Securities Act, the Exchange
Act or any Canadian, provincial or state securities law in connection with the
offering covered by the Registration Statement; provided, however, that the
Company will not be liable for indemnification in any such case to the extent
that any losses, claims, damages or liabilities arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact or omission
or alleged omission of a material fact so made in reliance upon and in
conformity with information furnished to the Company by such Holder. The Company
will pay to each such Holder, partner, officer, director or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a violation.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE
SECURITIES. To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, agents and each
person, if any, who controls the Company within the meaning of the Securities
Act against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, agent or controlling person may
become subject under the Securities Act, the Exchange Act or other federal,
Canadian, provincial or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
-5-
<PAGE>
furnished by such Holder under an instrument duly executed by such Holder and
stated to be specifically for use in connection with such registration; and each
such Holder will pay as incurred any legal or other expenses reasonably incurred
by the Company or any such director, officer, agent, controlling person or other
person in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that in no event shall any indemnity under this
Section 2.5(b) exceed the dollar amount of proceeds from the offering received
by such Holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly
after receipt by an indemnified party under this Section 2.5 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 2.5, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if, in the
reasonable judgment of any such indemnified party, based upon advice of counsel,
a conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, if the
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party; provided, however, that the indemnified
party shall be entitled to elect only one counsel at the expense of the
indemnifying party and such counsel shall be reasonably acceptable to the
indemnifying party). The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if it is
finally determined in a court of competent jurisdiction (which determination is
not subject to appeal) that such failure is materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 2.5, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 2.5. No indemnifying party shall be liable for any settlement of any
claim or action effected without its written consent.
(d) CONTRIBUTION. If the indemnification provided for
in this Section 2.5 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses, claims, damages
or liabilities referred to herein, the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
Violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, that in no event
shall any contribution by a Holder hereunder exceed the dollar amount of
proceeds from the offering received by such Holder.
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<PAGE>
(e) SURVIVAL; SETTLEMENT. The obligations of the
Company and Holders under this Section 2.5 shall survive completion of any
offering of Registrable Securities in a registration statement and the
termination of this Registration Rights Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
3. RULE 144
The Company covenants that it will file the reports require to be filed
by it (if so required) under the Securities Act and the Exchange Act and the
Rules and Regulations adopted by the SEC thereunder in a timely manner and, if
at any time the Company is not required to file such reports, it will, upon the
request of any Holder of Registrable Securities, make publicly available other
information so long as necessary to permit sales pursuant to Rule 144 under the
Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act pursuant to the
exemptions provided by Rule 144 under the Securities Act. Upon the request of
any Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such information
requirements.
4. MISCELLANEOUS
4.1 GOVERNING LAW. This Registration Rights Agreement shall be
governed by and construed under the laws of the State of California as applied
to agreements among California residents entered into and to be performed
entirely within California.
4.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
Permitted Assignee of Registrable Securities from time to time. A "Permitted
Assignee" shall mean (i) with respect to any Investor, any other person directly
or indirectly controlling or controlled by or under direct or indirect, common
control with such Investor, (ii) the spouse, sibling, child, step-child,
grandchild, niece, nephew or parent of the Investor, or the spouse thereof, and
(iii) any transferee or assignee of not less than 50,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, and the like). The Company
may not assign the rights or obligations hereunder without the prior written
consent of each Holder of Registrable Securities.
4.4 ENTIRE AGREEMENT. This Registration Rights Agreement,
including any exhibits hereto, the Purchase Agreement and the other documents
delivered pursuant thereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
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<PAGE>
4.5 SEVERABILITY. In case any provision of the Agreement shall
be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
4.6 AMENDMENT AND WAIVER. The provisions of this Registration
Rights Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that Sections 2.1 and 2.5 shall not be amended,
modified or supplemented, and waivers or consents to departures from this
proviso may not be given, unless the Company has obtained the written consent of
each Holder of the then outstanding Registrable Securities.
4.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Registration Rights
Agreement shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on any Holder's part of any breach, default or
noncompliance under the Agreement or any waiver on such Holder's part of any
provisions or conditions of this Registration Rights Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Registration Rights Agreement, by law,
or otherwise afforded to Holders, shall be cumulative and not alternative.
4.8 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified, (b) when sent by
confirmed facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (c) upon receipt when sent by first-class
registered or certified mail, return receipt requested, postage prepaid, or (d)
upon receipt after deposit with a nationally recognized overnight express
courier, postage prepaid, specifying next day delivery with written verification
of receipt. All communications shall be sent to the party to be notified at the
address as set forth below or at such other address as such party may designate
by ten (10) days advance written notice to the Company. All communications shall
be addressed as follows:
-8-
<PAGE>
(a) if to the Company, to:
ENTREPORT CORPORATION
10455 Sorrento Valley Road, Suite 204
San Diego, California 92121
Telephone: (858) 643-5100
Facsimile: (858) 643-1732
Attention: Chief Executive Officer
with a copy so mailed to:
OPPENHEIMER WOLFF & DONNELLY LLP
500 Newport Center Drive, Suite 700
Newport Beach, California 92660
Telephone: (949) 823-6000
Facsimile: (949) 823-6040
Attention: Daniel K. Donahue
(b) if to the Investors, at the address as set forth
on the Counterpart Execution Page of this Registration Rights Agreement,
with a copy so mailed to:
CRUTTENDEN ROTH INCORPORATED
24 Corporate Plaza
Newport Beach, California 92660
Telephone: (949) 720-5700
Facsimile: (949) 720-7223
Attention: Managing Director
4.9 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Registration Rights Agreement should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Registration Rights Agreement, including
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
4.10 SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its affiliates (as such term is defined in Rule 405 under the
Securities Act) (other than the Holders or subsequent Holders of Registrable
Securities if such Holders or subsequent Holders are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
4.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Registration Rights Agreement are for convenience of
reference only and are not to be considered in construing this Registration
Rights Agreement.
-9-
<PAGE>
4.12 COUNTERPARTS. This Registration Rights Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
If this Registration Rights Agreement is satisfactory to you, please so
indicate by signing a counterpart execution page to this Registration Rights
Agreement and a Registration Statement Questionnaire and return such counterpart
and questionnaire to the Company whereupon subject to the Company's acceptance
of your subscription, this Registration Rights Agreement will become binding
between us in accordance with its terms.
ENTREPORT CORPORATION,
a Florida corporation
By: /S/ William Shue
--------------------
William Shue
Chief Executive Officer
-10-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
REGISTRATION RIGHTS AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the EntrePort
Corporation Registration Rights Agreement.
INVESTOR:
-----------------------------
By:__________________________
Name:
Title:
Address:
Facsimile:
-11-
<PAGE>
APPENDIX I
ENTREPORT CORPORATION
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information:
1. Please state your or your organization's name exactly as it should
appear in the Registration Statement:
-------------------------------------------
2. Please provide the following information, as of ________________,
2000:
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------------------------------------
<S> <C>
Number of Shares that you are purchasing and Number of Shares of Common Shares that you already
seek to include in the Registration Statement: beneficially own or that you are purchasing and do NOT
seek to include in the Registration Statement:
- ------------------------------------------------ ---------------------------------------------------------
</TABLE>
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?
Yes _____ No _____
If yes, please indicate the nature of any such relationships:__________
- --------------------------------------------------------------------------------
INVESTOR:
---------------------------------------
By:____________________________________
Print Name:____________________________
Title:_________________________________
The foregoing constitutes the only information furnished to the Company for the
purpose of Section 2.5(b) of the Registration Rights Agreement.
Exhibit 16.1
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for EntrePort Corporation, a
Florida corporation ("Company") which at the time of our audit was known as
Dogwood Tree Capital Corp., and on October 6, 1998 we reported on the financial
statements of the Company as of October 5, 1998, December 31, 1997 and December
31, 1996 and for the periods January 1, 1998 to October 5, 1998, for the year
ended December 31, 1997 and for the period October 4, 1996 (inception) to
December 31, 1996. We have read the Company's statements included under Item 8
of its Annual Report on Form 10-KSB for the year ended December 31, 1999 and we
agree with such statements.
/s/ BARRY L. FRIEDMAN
---------------------
BARRY L. FRIEDMAN
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,458,139
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,663,536
<PP&E> 114,736
<DEPRECIATION> 17,419
<TOTAL-ASSETS> 2,433,618
<CURRENT-LIABILITIES> 477,667
<BONDS> 0
0
0
<COMMON> 7,835
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,433,618
<SALES> 11,911
<TOTAL-REVENUES> 11,911
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,894,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,154
<INCOME-PRETAX> (1,891,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,891,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,891,812)
<EPS-BASIC> (.31)
<EPS-DILUTED> (.31)
</TABLE>
