<PAGE>
As filed with the Securities and Exchange Commission on December 22, 2000
Registration No. 333-36620
==========================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ENTREPORT CORPORATION
(Name of small business issuer in its charter)
FLORIDA 7379 65-0703923
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2790 BUSINESS PARK DRIVE, SUITE B
VISTA, CALIFORNIA 92083
760-597-4800
(Address and telephone number of principal executive offices
and principal place of business)
--------------------------------------
WILLIAM A. SHUE
ENTREPORT CORPORATION
2790 BUSINESS PARK DRIVE, SUITE B
VISTA, CALIFORNIA 92083
(760) 597-4800
(Name, address and telephone number of agent for service)
---------------------------
COPIES TO:
DANIEL K. DONAHUE, ESQ.
OPPENHEIMER WOLFF & DONNELLY LLP
500 NEWPORT CENTER DRIVE, SUITE 700
NEWPORT BEACH, CA 92660
(949) 823-6000
---------------------------
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
6,091,114 Shares
[Entreport Logo Here]
Common Stock
This prospectus relates to the offer and sale of 5,841,114 shares of
our common stock by the selling stockholders identified in this prospectus and
our offer and sale of up to 250,000 shares of our common stock. The selling
stockholders will determine when they will sell their shares, and in all cases,
will sell their shares at the current market price or at negotiated prices at
the time of the sale. Although we have agreed to pay the expenses related to the
registration of the shares being offered, we will not receive any proceeds from
the sale of the shares by the selling stockholders. We intend to sell our shares
from time to time within the next two years for cash or noncash consideration,
including services rendered, at a purchase price of $2.00 per share.
Our common stock is currently traded on the American Stock Exchange
under the symbol "ENP." On December__, 2000, the last reported sale price of the
common stock on the AMEX was $____ per share.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 2 TO READ ABOUT CERTAIN
FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is ____________, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary...........................................1 Management.......................................21
Risk Factors......................................2 Principal Stockholders...........................25
Cautionary Statement Regarding Description of Securities........................26
Forward-looking Statements........................4
Legal Matters....................................26
Use of Proceeds...................................5
Experts..........................................27
Market for Common Equity and Related
Stockholder Matters.............................5 Changes in and Disagreements with
Accountants....................................27
Selling Stockholders..............................6
Available Information............................27
Management's Discussion and Analysis or
Plan of Operation..............................11 Index to Financial Statements....................F-1
Business.........................................12
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
UNDER THIS PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR SINCE THE DATE
OF ANY DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN
ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN EACH STATE.
<PAGE>
SUMMARY
THE OFFERING
This offering relates to the offer and sale of 5,841,114 shares of our
common stock by the selling stockholders identified in this prospectus. The
selling stockholders will determine when they will sell their shares, and in all
cases, will sell their shares at the current market price or at negotiated
prices at the time of the sale. Although we have agreed to pay the expenses
related to the registration of the shares being offered, we will not receive any
proceeds from the sale of the shares by the selling stockholders.
We are also offering for sale up to 250,000 shares of our common stock
at a price of $2.00 per share. While we may sell some or all of the 250,000
shares for cash, it is our intention to issue the 250,000 shares for noncash
consideration, including services rendered. We have no plans or arrangements at
this time to issue any of the 250,000 common shares and we do not intend to
issue any of the 250,000 common shares for noncash consideration except to
non-affiliates in arms' length transactions.
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below has been derived from
our financial statements. You should read this information in conjunction with
the financial statements and notes thereto, included elsewhere in this
memorandum.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
1999 1998 2000 1999 2000
-------------- -------------- -------------- -------------- --------------
(unaudited) (proforma)
<S> <C> <C> <C> <C> <C>
Net revenue................. $ 11,911 $ -0- $ 173,947 $ 11,414 $ 12,002,242
Net loss.................... (1,891,812) 800 (3,142,919) (1,173,190) (6,562,261)
Diluted loss per share...... (0.31) (0.00) (0.30) (0.20) (0.47)
Weighted average shares
outstanding - diluted..... 6,068,605 5,025,000 10,411,858 5,857,993 13,928,393
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1999 2000 2000
-------------- -------------- --------------
(unaudited) (proforma)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,458,139 $ 4,384,690 $ 5,224,715
Working capital............................................. 1,585,369 4,111,900 3,687,777
Total assets................................................ 2,433,618 6,240,212 34,176,909
Total liabilities........................................... 477,667 790,399 4,661,598
Total stockholders' equity.................................. 1,955,951 5,449,813 29,515,311
</TABLE>
OUR OFFICES
Our executive offices are located at 2790 Business Park Drive, Suite B,
Vista, California 92083. Our phone number is (760) 597-4800. Our Internet
address is www.entreport.com. Information contained on our web site shall not be
deemed to be a part of this prospectus.
-1-
<PAGE>
RISK FACTORS
WE HAVE GENERATED NET LOSSES SINCE INCEPTION WHICH MAY CONTINUE FOR THE
FORESEEABLE FUTURE AS WE TRY TO GROW OUR BUSINESS. We were founded in 1996 but
we began our current Internet-based business in March 1999. Our activities to
date have consisted primarily of market analysis and development of our initial
web sites, the first of which we launched in April 2000. As of the date of this
prospectus, we have not generated any meaningful revenues on which you can
evaluate our potential for future success. In the nine months ended September
30, 2000, we generated revenues of only $173,947 and incurred a net loss of
$3,142,919. Our accumulated deficit as of September 30, 2000 was $5,040,556. We
expect to continue incurring operating losses until we are able to derive
meaningful revenues from our web sites. If we do not generate sufficient
revenues or become profitable within a time frame expected by investors, the
market price of our common stock will likely decline. Even if we do achieve
profitability, we may not be able to sustain or increase profitability in the
future. As a new company, we are subject to all of the risks, expenses, and
uncertainties frequently encountered by companies in the new and rapidly
evolving markets for Internet-related products and services. Any unanticipated
expenses, problems, or technical difficulties may result in material delays both
in the completion of our web sites and in offering our services to the market.
WE HAVE LIMITED SOURCES OF FINANCING AND IF WE ARE UNABLE TO OBTAIN
ADDITIONAL CAPITAL WE MAY NOT BE ABLE TO PURSUE OUR GROWTH STRATEGY, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS AND OUR STOCK PRICE. We had $4,111,900 of working
capital as of September 30, 2000. If our revenues do not grow as expected, we
believe that our current cash balance will be sufficient to fund our operations
through June of 2001. We believe that we will require significant additional
capital in order to fund the development and launch of our future web sites. If
we are unable to obtain additional financing in sufficient amounts or on
acceptable terms, our operating results and prospects could be adversely
affected.
OUR BUSINESS MODEL IS NEW AND HAS NOT BEEN PROVEN BY US OR ANYONE ELSE
SO WE CAN NOT BE CERTAIN THAT OUR BUSINESS WILL EVER GAIN COMMERCIAL ACCEPTANCE.
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 information, communication tools, training and other goods and services
to members of industry specific Internet communities. Although we believe that
the uniqueness of our business model offers advantages, it is untried and
unproven so we have no assurances of consumer acceptance or market success.
While there are certain businesses engaged primarily in the business of
developing communities of personalized web sites, these businesses are not as
target specific as we are, thus their success may not be an indicator of our
potential success.
OUR ACQUISITIONS OF BY REFERRAL ONLY, INC. AND UNIVERSITY.COM, INC., IF
CONSUMMATED, WILL CAUSE US TO INCUR SIGNIFICANT AMOUNTS OF GOODWILL, WHICH WILL
REDUCE OUR FUTURE NET INCOME. Our acquisitions of By Referral Only and
University.com, if consummated, will be accounted for under the purchase method
of accounting, which means that we will be required to record the fair value of
the assets of By Referral Only and University.com, less their liabilities. The
difference between the purchase price we will pay for these companies and the
difference between their assets and liabilities will be recorded by us as
goodwill. As a result of these acquisitions, we expect to incur goodwill
totaling approximately $16.8 million which we will be required to amortize as
part of our operational expenses over the next five years. Although amortization
of goodwill is a non-cash expense, and will not negatively affect our cash flow
from operations, it will result in a significant reduction of our net income
over the next five years and may cause us to have a net loss in some or all of
those years. This reduction in our net income may have a negative effect on the
price of our common stock.
FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN
DISRUPTION TO OUR BUSINESS AND DIVERSION OF MANAGEMENT ATTENTION. A key
component of our business strategy is to apply our business model to other
industries in addition to the real estate industry. To implement our strategy,
we may acquire other companies in addition By Referral Only and University.com.
For each acquisition, we will be required to assimilate the operations, products
and personnel of the acquired business and train, retain and motivate its key
personnel. We may be unable to maintain uniform standards, controls, procedures
and policies if we fail in these efforts. Similarly, acquisitions may subject us
to liabilities and risks that are not known or identifiable at the time of the
acquisition or may cause disruptions in our operations and divert management's
attention from day-to-day operations, which could impair our relationships with
our current employees, customers and strategic partners. We may have to incur
debt or issue equity securities to pay for any future acquisitions. The issuance
of equity securities could be substantially dilutive to our shareholders. In
addition, our profitability may suffer because of acquisition related costs or
amortization costs for acquired goodwill and other intangible assets.
-2-
<PAGE>
BECAUSE WE HAVE FEW PROPRIETARY RIGHTS, AND OTHERS CAN PROVIDE PRODUCTS
AND SERVICES SUBSTANTIALLY EQUIVALENT TO OURS, IT WILL BE DIFFICULT FOR US TO
SUSTAIN A COMPETITIVE ADVANTAGE BY ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS.
We hold no patents. We believe that most of the technology used by us in the
design and implementation of our web sites is generally known and available to
others. Consequently, others can design and implement web sites that are
substantially equivalent to ours. We rely on a combination of confidentiality
agreements and trade secret law to protect our confidential information.
Additionally, we restrict access to confidential 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 IN A HIGHLY COMPETITIVE BUSINESS WITH LOW BARRIERS TO ENTRY AND
WE MAY LOSE BUSINESS TO OUR COMPETITORS IF WE DO NOT CONTINUE TO OFFER
INNOVATIVE PRODUCTS AND SERVICES. The on-line commerce market is new, rapidly
evolving and intensely competitive. We expect competition to intensify in the
future because barriers to entry are minimal and current and new competitors can
launch new web sites at a relatively low cost. To remain competitive, we must
continue to enhance and improve the responsiveness, functionality and features
of our on-line products and services. The Internet and the on-line commerce
industry are characterized by rapid technological change, changes in user and
customer requirements and preferences and frequent product and service
introductions. If competitors introduce products and services embodying new
technologies, then our existing web sites may become obsolete. Our future
success will depend on our ability to enhance our existing services and to
develop new services that address the increasingly sophisticated and varied
needs of our prospective subscribers.
WE MAY BE SUBJECT TO CLAIMS AS A RESULT OF INFORMATION PUBLISHED ON,
POSTED ON OR ACCESSIBLE FROM OUR INTERNET SITES, WHICH MAY CAUSE US TO INCUR
SIGNIFICANT LEGAL COSTS AND LOSE RIGHTS TO PUBLISH CERTAIN INFORMATION ON OUR
WEB SITES. We may be subject to claims of defamation, negligence, copyright or
trademark infringement relating to the information contained on our web sites,
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. Because we depend heavily on third-party content
providers, the quality of our product offerings could suffer if we were required
to cease using some of our content as a result of third party claims. Likewise,
if we are unable to use the technology and content we plan to acquire from By
Referral Only and University.com due to problems that were unknown to us at the
time of closing, the purposes of those acquisitions may be frustrated and we may
not have adequate recourse to compensate us for our damages. While no claims
have been made against us to date, claims for intellectual property infringement
and other causes of action have been made against By Referral Only which are
currently scheduled for arbitration in January 2001. While we believe that we
have obtained adequate protection against liability for the By Referral Only
litigation by means of contractual indemnification provisions, we may have
successor liability after the closing of the acquisition.
-3-
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This prospectus and the documents to which we refer you and incorporate
into this prospectus by reference contain forward-looking statements. In
addition, from time to time, we or our representatives may make forward-looking
statements orally or in writing. We base these forward-looking statements on our
expectations and projections about future events, which we derive from the
information currently available to us. Such forward-looking statements relate to
future events or our future performance.
You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as "may,"
"will," "should," "expects," "anticipates," "contemplates," "estimates,"
"believes," "plans," "projected," "predicts," "potential" or "continue" or the
negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including those described in
this prospectus under the heading "Risk Factors" beginning on page 2. These and
other factors may cause our actual results to differ materially from any
forward-looking statement.
Forward-looking statements are only predictions. The forward-looking
events discussed in this prospectus, the documents to which we refer you and
other statements made from time to time by us or our representatives, may not
occur, and actual events and results may differ materially and are subject to
risks, uncertainties and assumptions about us. For these statements, we claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
-4-
<PAGE>
USE OF PROCEEDS
We are registering 5,841,114 shares for sale by the selling
stockholders and we are offering up to 250,000 shares for sale at a price of
$2.00 per share. We will receive no proceeds from the sale of the selling
stockholders' shares. We intend to sell the 250,000 shares for noncash
consideration, including services rendered and, accordingly, we do not expect to
receive any cash proceeds from the sale of those shares. If, however, we sell
some or all of the shares for cash, we expect to use the proceeds for working
capital. But we retain the right to use such proceeds, if any, for other uses as
we see fit, in our sole discretion.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has traded on the American Stock Exchange under the
symbol "ENP" since June 16, 2000. Prior to that date, our common stock traded on
the OTC Bulletin Board under the symbol "ERTE." The following table shows the
high and low bid prices for our common stock since the inception of trading in
February 1999 through June 15, 2000 as reported by the OTC Bulletin Board and
the high and low sale prices since June 16, 2000 as reported by the American
Stock Exchange. We consider our stock to be "thinly traded" and any reported
sale prices may not be a true market-based valuation of our stock. Some of the
bid quotations from the OTC Bulletin Board set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
1999 (OTC Bulletin Board) High Bid Low Bid
--------------------------------------------------------------------------------
First quarter (from February 16, 1999) $ 2.25 $ .06
Second quarter 5.25 1.00
Third quarter 7.75 1.75
Fourth quarter 6.94 1.75
2000 (OTC Bulletin Board)
--------------------------------------------------------------------------------
First quarter $ 10.38 $ 4.50
Second quarter (through June 15, 2000) 8.63 3.00
2000 (American Stock Exchange) High Sale Low Sale
--------------------------------------------------------------------------------
Second Quarter (from June 16, 2000) $ 4.25 $ 3.00
Third Quarter 4.94 2.75
As of the date of this prospectus, we had approximately 151 record
holders of our common stock.
-5-
<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the offer and sale of 5,841,114 shares of
our common stock by the selling stockholders identified below. With the
exception of Tony Acone and Scott Lucas, none of the selling stockholders are or
have been affiliates of ours. Mr. Acone has served on our board since November
1999 and Mr. Lucas has served on our board since April 2000. Prior to his
appointment to our board, Mr. Acone purchased 25,000 shares and Mr. Lucas
purchased 150,000 shares of our common stock in our private placement offerings.
The selling stockholders will determine when they will sell their
shares, and in all cases, will sell their shares at the current market price or
at negotiated prices at the time of the sale. Although we have agreed to pay the
expenses related to the registration of the shares being offered, we will not
receive any proceeds from the sale of the shares by the selling stockholders.
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of the date of this prospectus by each of the
selling stockholders:
<TABLE>
<CAPTION>
Shares Beneficially Owned
Prior to Offering
-------------------------
Number of Number of Shares Beneficially Owned
Name Shares owned Shares offered After Offering(1)
------------------------------ -------------- -------------- -------------------------
<S> <C> <C> <C>
ABS LLC 50,000 50,000 0
Acone, Tony(2) 175,000 25,000 150,000
Andrews, Calvin P. & Carrie M. 25,000 25,000 0
Bi Coastal Consulting Corp. 75,000 75,000 0
Blomquist, Rick 10,000 10,000 0
Blomquist, William G. 5,000 5,000 0
Bradford, John D. 13,000 13,000 0
Copeland, Alfred T. 5,000 5,000 0
Cutler, Frank 200,000 200,000 0
The Del Mar Consulting
Group, Inc. 500,000 133,334 366,666
Dunlap, Brad C. 1,000 1,000 0
Feshbach, Matthew L. 50,000 50,000 0
Furla, George 137,500 137,500 0
Furla, Leo G. & Angelica L. 12,500 12,500 0
Furla, Peter 25,000 25,000 0
Furla, Spero 25,000 25,000 0
Galanis, Themis G. 25,000 25,000 0
Gilford Financial Corp. 5,000 5,000 0
Jonathan & Nancy Glase
Family Trust dtd. 12/16/98 25,000 25,000 0
Gray, Charles C. 20,000 20,000 0
Green, Robert 25,000 25,000 0
Gunther Family Trust 50,000 50,000 0
The Halo Group, LLC 47,500 47,500 0
Hardy, Thomas 15,000 15,000 0
N. Herrick Irrevocable
Securities Trust 50,000 50,000 0
Hixon, Barry C. 500 500 0
Santa Barbara Bank & Trust
Custodian fbo Jason F. Hughes
Roth IRA 2,500 2,500 0
Hughes, Jason F. 1,500 1,500 0
KAMC Corporation 131,350 131,350 0
IGSB-Karan I, LLC 486,080 486,080 0
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
Prior to Offering
-------------------------
Number of Number of Shares Beneficially Owned
Name Shares owned Shares offered After Offering(1)
------------------------------ -------------- -------------- -------------------------
<S> <C> <C> <C>
Santa Barbara Bank & Trust
Custodian fbo Steven L.
Karan Roth IRA 9,920 9,920 0
Arthur G. Kaiser Profit Sharing
Trust dtd. 3/8/74 50,000 50,000 0
Kearns, Donald B. & Jean K.
Wickersham 15,000 15,000 0
Kieft, Gerald N. 1,000 1,000 0
Prudential Securities C/F
Elizabeth C. Kennedy IRA 20,000 20,000 0
Knowles Family Trust
dtd. 4/3/96 50,000 50,000 0
Kossoff, Jerome & Maxine 50,000 50,000 0
Liberty View Fund LLC 67,500 67,500 0
Liberty View Funds, L.P. 382,500 382,500 0
The Licklider Living Trust
dtd. 5/2/86 125,000 125,000 0
Marchese, Frank 12,500 12,500 0
Miller, Michael 25,000 25,000 0
Millennium Capital Corporation 25,000 25,000 0
Karen Misasi-Humphreys
Roth IRA 5,000 5,000 0
Bear Stearns Securities Corp.
C/F Steven Mizel Roth IRA 50,000 50,000 0
Montgomery, J.D. 5,000 5,000 0
Pappas, Nicholas C. 12,500 12,500 0
Reichl, George 12,500 12,500 0
Remes, Peter C. 12,500 12,500 0
Richter, Roger 25,000 25,000 0
Romer, Russell & Linda L. 12,500 12,500 0
Roth Capital Partners(3) 377,500 377,500 0
Rothman, Henry 25,000 25,000 0
Schachner, Mark 50,000 50,000 0
Schmid, Jason T. 2,500 2,500 0
Schmid, Jeffrey L. 15,000 15,000 0
Schmid, Lewis R. 22,500 22,500 0
Shapiro, Craig 25,000 25,000 0
Coleman Fine Arts Ltd.
Defined Benefit Pension Plan 25,000 25,000 0
St. Claire Capital
Management, Inc. 12,500 12,500 0
Teal Fund, L.P. 125,000 125,000 0
Tucillo, John 7,000 7,000 0
Walshe, Joseph A. 20,000 20,000 0
WH Partners 75,000 75,000 0
Willey, Frank P. 25,000 25,000 0
Stuart Zimmerman Revocable
Trust dtd. 3/26/97 25,000 25,000 0
Bridge Ventures, Inc. 25,000 25,000 0
Posner, Linda 25,000 25,000 0
Jagid, Bruce 12,500 12,500 0
Lucas, Scott G.(4) 170,000 150,000 20,000
Lava Investments Limited 250,000 250,000 0
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
Prior to Offering
-------------------------
Number of Number of Shares Beneficially Owned
Name Shares owned Shares offered After Offering(1)
------------------------------ -------------- -------------- -------------------------
<S> <C> <C> <C>
Emmett, Randall 50,000 50,000 0
Trencher, Christopher 10,000 10,000 0
Copeland, Alfred T. 100,000 100,000 0
Wachtel, William B. 50,000 50,000 0
Gail A. Doyle Revocable
Trust dtd. 12/12/94 12,500 12,500 0
Ronald C. Erbetta & Sandra F.
Erbetta Family Trust
dtd. 3/2/88 12,500 12,500 0
Merlino, Frank A. 12,500 12,500 0
Anthony Erbetta Declaration
of Trust 50,000 50,000 0
London, Robert S. 250,000 250,000 0
Primo Capital Growth Fund 75,000 75,000 0
Rosebud Capital Growth
Fund Ltd. 75,000 75,000 0
Stanley Hollander 39,000 39,000 0
John Muradian & Stacey
Muradian, JTWROS 20,000 20,000 0
E&M Family Living Trust
dtd. 11/28/95 12,500 12,500 0
Glenn Lyons and Nancy Gerdt
Trust dtd. 5/27/92 12,500 12,500 0
DiManno, Michael A. 7,500 7,500 0
Jensen, C. James 50,000 50,000 0
Matulich, Jay and Kathy 7,500 7,500 0
Gabbert, Roger D. 17,000 17,000 0
Carpenter, Richard S. 10,000 10,000 0
Lamberson, Jeff 10,000 10,000 0
Hawkins, Michael W. 12,500 12,500 0
Beller, Gary L. 12,500 12,500 0
Wolfley, D. Dennis 2,500 2,500 0
Rothchild, Joseph B. & Sarah J. 50,000 50,000 0
Sandman, Sheila 11,000 11,000 0
Goto, Eric K. 10,000 10,000 0
Serra, Jose E. & Cecilia P. 25,000 25,000 0
Koretz, Allan R. 12,500 12,500 0
Copeland, Thomas G. 25,000 25,000 0
Copeland, Thomas G. 50,000 50,000 0
Knowles, Michael A 25,000 25,000 0
Altavilla, Jr., Anthony D. 15,000 15,000 0
Altavilla, Jr., Anthony D. 10,000 10,000 0
McCarthy, Thomas G. 12,500 12,500 0
Frankson, Carl 10,000 10,000 0
Terry Paranych Group, Ltd. 12,500 12,500 0
Reichl, George 15,000 15,000 0
Reichl, George 27,500 27,500 0
Trencher, Christopher 25,000 25,000 0
Kauser Partners 100,000 100,000 0
Anderson, Carl A. 5,000 5,000 0
Gefsky, H. Arnold 5,000 5,000 0
Intrepid Securities Ltd. 237,430 237,430 0
Jacobs, Alan 7,500 7,500 0
</TABLE>
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<TABLE>
<CAPTION>
Shares Beneficially Owned
Prior to Offering
-------------------------
Number of Number of Shares Beneficially Owned
Name Shares owned Shares offered After Offering(1)
------------------------------ -------------- -------------- -------------------------
<S> <C> <C> <C>
Jacobs, Michael 7,500 7,500 0
Ingleby, Raymond S. 200,000 200,000 0
Fillet, Stephen W. 12,000 12,000 0
Trinity American Corporation 50,000 50,000 0
Sloan, Paul 25,000 25,000 0
Howe, H. Page 5,000 5,000 0
TOTAL 6,377,780 5,841,114 536,666
</TABLE>
------------
(1) Assumes all of the offered shares are sold.
(2) Includes options granted to Mr. Acone to purchase 150,000 shares of common
stock.
(3) Represents shares issuable under a presently exercisable common stock
purchase warrant.
(4) Includes options granted to Mr. Lucas to purchase 20,000 shares of common
stock.
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PLAN OF DISTRIBUTION
This prospectus covers the resale by selling shareholders of shares of
our common stock that they have already purchased from us. Selling shareholders
may sell their shares of common stock either directly or through a broker-dealer
in one or more of the following kinds of transactions:
o transactions in the over-the-counter market;
o transactions on a stock exchange that lists our common stock; or
o transactions negotiated between selling shareholders and purchasers, or
otherwise.
Broker-dealers may purchase shares directly from a selling shareholder
or sell shares to someone else on behalf of a selling shareholder.
Broker-dealers may charge commissions to both selling shareholders selling
common stock, and purchasers buying shares sold by a selling shareholder. If a
broker buys shares directly from a selling shareholder, the broker may resell
the shares through another broker, and the other broker may receive compensation
from the selling shareholder for the resale. The selling shareholders and any
broker-dealers acting in connection with the sale of the shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act of 1933, and any commissions received by them and any profit realized by
them on the resale of shares as principals may be deemed underwriting
compensation under the Securities Act of 1933. Neither the selling shareholders
nor us can presently estimate the amount of such compensation. We know of no
existing arrangements between the selling shareholders and any other
shareholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares.
To the extent required by laws, regulations or agreements we have made,
we will file a prospectus supplement during the time the selling shareholders
are offering or selling shares covered by this prospectus in order to add or
correct important information about the plan of distribution for the shares and
in accordance with our obligation to file post-effective amendments to the
prospectus as required by Item 512 of Regulation S-B. In addition to any other
applicable laws or regulations, selling shareholders must comply with
regulations relating to distributions by selling shareholders, including
Regulation M under the Securities Exchange Act of 1934. Regulation M prohibits
selling shareholders from offering to purchase and purchasing our common stock
at certain periods of time surrounding their sales of shares of our common stock
under this prospectus. Some states may require that registration, exemption from
registration or notification requirements be met before selling shareholders may
sell their common stock. Some states may also require selling shareholders to
sell their common stock only through broker-dealers.
We will not receive any proceeds from the sale of the shares by the
selling shareholders pursuant to this prospectus. We have agreed to bear the
expenses (other than broker's commissions and similar charges) of the
registration of the shares, including legal and accounting fees. The selling
shareholders may also use Rule 144 under the Securities Act of 1933 to sell the
shares if they meet the criteria and conform to the requirements of such Rule.
Offers or sales of the shares have not been registered or qualified under the
laws of any country other than the United States. To comply with certain states'
securities laws, if applicable, the shares will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. There can
be no assurance that the selling shareholders will sell any or all of the shares
offered by them hereunder.
We intend to sell a up to 250,000 shares of our common stock from time
to time within the next two years for cash and non-cash consideration, including
services rendered. Such sales will be made through our officers and directors on
a self-underwritten basis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
We are engaged in developing web sites on the internet for purposes of
offering information, communication tools and training to members of industry
specific internet communities. We intend to generate revenue through:
o commissions earned on the sale of products and services at our web store;
o membership fees charged to subscribers to our web sites;
o advertising income from third party advertisers at our web sites; and
o percentage interests in the income derived by third parties who provide
seminars, training and speeches at our web sites.
Our business activities from inception through approximately April 2000
consisted of market analysis for potential web sites, including in-house beta
testing of several industry specific web sites for which we have received
approximately $23,000 in revenue through December 31, 2000. In addition, for the
nine month period ending September 30, 2000 we generated approximately $80,000
in revenues from sponsorship fees in connection with the marketing seminars we
discuss below. In April 2000, we launched our initial web site devoted to
residential real estate agents located at WWW.ISUCCEED.COM, for which we have
generated approximately $83,000 for the nine month period ending September 30,
2000. Since April 2000, our business activities have included:
o the marketing of our real estate site at www.iSucceed.com, through the
conduct of approximately 32 seminars to promote the site as of the date
of this prospectus;
o the development of certain strategic relationships with third parties for
purposes of procuring content and marketing support;
o continuing market analysis of additional web sites devoted to other
professional and industry groups; and
o expansion of our in-house technology capabilities.
We have financed our activities to date through sales of securities.
From March through May 1999, we conducted a private placement sale of
convertible notes for gross proceeds of $695,000. The principal amount of the
notes were convertible into shares of common stock at rates 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. During the period from August to January 2000,
we conducted a private placement sale of 1,524,430 shares of common stock at
$2.00 per share for gross proceeds of $3,048,280. During February and March
2000, we conducted a private placement sale of 3,525,000 shares of common stock
at $2.00 per share for gross proceeds of $7,050,000, which resulted in net
proceeds of approximately $5,802,000 after deduction of offering expenses.
PLAN OF OPERATION
Over the next 12 months, we intend to continue the development and
marketing of our iSucceed.com web site and commence development of our financial
services site and other industry specific web sites. We also plan to devote
significant efforts to integrating our planned acquisitions of By Referral Only,
Inc. and University.com, Inc.
As of September 30, 2000, we had working capital of $4,111,900, which
we believe will be sufficient to satisfy our estimated working capital
requirements through June 2001. If we are successful in increasing our revenues
as projected, we may be able to fund our operations for a longer period,
although we will need significant additional capital to expand our business by
developing or acquiring additional web portals for other industries. In order to
increase revenues, we plan to generate membership through our current and future
strategic relationships with third parties for marketing support, on-line and
off-line advertising, including traditional industry print, targeted direct mail
and telemarketing, and through the visibility created by our seminars. After the
acquisition of University.com, we also plan to generate membership through
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University.com's corporate clients, although there can be no assurances that we
will be able to generate membership as planned. We believe that we will need
significant additional working capital during fiscal 2001 to fund acquisitions
and development of other industry specific web portals. We plan to raise $10
million to $20 million in 2001 through the sale of our securities to pursue our
growth strategy. There can be no assurance that we will be able to obtain
sufficient additional capital in a timely manner.
As of the date of this prospectus, we have 41 employees, of which 40 are
full-time and 1 is part-time.
BUSINESS
GENERAL
We are engaged in the business of developing and operating web sites to
provide training, information and services to industry specific groups. In April
2000, we launched our first web site, www.iSucceed.com, which 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 prospectus, we have entered into
agreements with over 150 top real estate agents, speakers and trainers to
provide content and training on iSucceed.com at very low cost to us. Going
forward, we intend to launch similar web sites for professionals in other
industry segments.
Each of our web sites 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 forum o chat rooms
Some resources and services such as e-mail, forums, search engines,
shopping and training will be common to all of our industry sites. However, each
site will also contain resources and services tailored to the needs and
interests of that site's specific industry group. By adopting this approach, we
believe that each site will be of more utility to its targeted users than the
majority of current sites which seek to attract the public at large.
We were incorporated in Florida in 1996, and began our current
internet-based business in 1999.
ACQUISITION OF BY REFERRAL ONLY
On October 25, 2000, we entered into a definitive agreement to acquire
By Referral Only, Inc., a California corporation based in Oceanside, California,
which provides coaching, teleclasses, seminars and business planning for the
real estate and mortgage industry.
The transaction is structured as a merger of By Referral Only with and
into a wholly-owned subsidiary of EntrePort that we formed specifically for the
purposes of the merger. As a result of the merger, By Referral Only will become
a wholly-owned subsidiary of EntrePort. Under the terms of the agreement, we
will issue 2.25 million shares of our common stock to the existing shareholders
of By Referral Only and pay them a total of $4,000,000 in cash in exchange for
all of the issued and outstanding shares of common stock of By Referral Only.
The closing of the transaction is subject to the satisfaction of customary
closing conditions, including our ability to raise at least $5 million through
the sale of our equity securities in a private offering. We expect to close the
acquisition of By Referral Only in January 2001.
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ACQUISITION OF UNIVERSITY.COM
On October 24, 2000, we entered into a definitive agreement to acquire
University.com, Inc., a Minnesota corporation based in Minneapolis, Minnesota,
which is engaged in the business of developing, hosting, managing and providing
support for internet training and education portals.
The transaction is structured as a merger in which a wholly-owned
subsidiary of EntrePort formed specifically for the purposes of the merger will
merge with and into University.com. As a result of the merger, University.com
will become a wholly-owned subsidiary of EntrePort. Under the terms of the
agreement, we will issue approximately 5.6 million shares of our common stock to
the existing shareholders of University.com in exchange for all of the issued
and outstanding shares of common stock of University.com. An additional 1.15
million shares will be issuable upon the exercise of outstanding options and
warrants that we will assume from University.com in the merger. The closing of
the transaction is subject to the satisfaction of customary closing conditions,
including the approval of our shareholders. Assuming we obtain shareholder
approval, we expect to close the acquisition of University.com in January 2001.
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 underserved 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 videotapes. 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 on our web
sites 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.
We intend to address the need for business training and information
through the consolidation of proprietary training and content in web sites
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 sites,
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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 sites directed at
industry specific audiences. To this end, we intend to position ourselves 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 we have the ability to
offer a financial model unlike the majority of other e-commerce companies. We
launched our initial web site in April 2000, but as of the date of this
prospectus we have not received significant revenues from operations. As a
result, there can be no assurance that our business model will be successful or
that we will be able to generate revenues as planned.
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 videotapes.
Marketers, therefore, 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 sites at no cost to them. Additionally,
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 do not
intend to warehouse the products but will take orders, process credit cards and
pass along the order to the respective provider for shipments. We intend to
charge the marketer a commission, exclusive of shipping and handling charges,
which we believe to be significantly higher than commissions typically received
by on-line distributors.
To date, we have signed agreements with over 150 of the top real estate
agents, speakers and trainers in North America, each of whom have agreed to
provide us with commissions on all sales of their products through our web
store. In choosing real estate agents to provide content on our site, we target
agents who we believe to be highly successful. We believe that most of our
agents are among the nation's top 10% in terms of annual sales volume, and many
of our agents are among their firm's top ten overall producers. In selecting
speakers and trainers, we have targeted persons who are widely recognized as
experts in the industry, including, for example, Terri Murphy, who is the
Chairman of the National Association of Realtors' Business Technology Forum and
the author of two best selling real estate books, and John Tucillo, who is the
former Chief Economist for the National Association of Realtors and the author
of two best selling real estate books.
In addition to providing content, we believe that our industry
marketing experts will provide access to significant numbers of 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 site 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 thereby capitalizing on
each marketer's experience and ability to sign up a predictable amount of
members at the end of each seminar.
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 our 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; and
o Creation of a deep content library deliverable on demand to
members.
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OUR PRODUCTS AND SERVICES
We intend to develop web sites that will offer general information,
communication tools, training and other goods and services to members of certain
industry specific internet communities. These web sites will be accessible by
the general public, however, only established subscribers or registered visitors
will be permitted to use our sites as the case may be.
Our web sites 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 sites will be able to subscribe over the internet by completing an
application available at the web site, opening an account and making a deposit
with us via credit card.
Our sites will provide rich content to specific industry groups. Each
site 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.
Some resources and services such as e-mail, forums, search engines, shopping and
training will be common to all sites. However, each site will also contain
resources and services tailored to the needs and interests of the particular
industry group for that site. By adopting this approach, we believe that each
site will be of more utility to its targeted users than are the majority of
current sites which seek to attract the public at large.
Our Real Estate Site. Our first web site is located at www.iSucceed.com
and is 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.
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.
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Our real estate site includes the following content:
o listing for profit o agent referrals
o profiting on "for sale by owners" o zero cost programs
o target marketing systems o customer service
o pre-list packaging o referrals to home buyers
o virtual home tours o continuing education
o pricing strategies
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We have entered into an exclusive agreement with Dearborn Financial
Publishing, Inc., who is a nationally recognized provider of continuing
education programs in the real estate industry. Under the terms of this
agreement, our members have access to Dearborn's online continuing real estate
education courses. By clicking on a link on the iSucceed.com web page, our
members will be taken to a page maintained by Dearborn but branded with the
iSucceed.com name. Dearborn has agreed that it will not grant any other party
the right to use its online real estate continuing education programs. In
consideration for the right to access its programs, we have agreed to pay
Dearborn the greater of $2.50 per iSucceed.com subscriber or a minimum fee which
gradually increases from $3,750 to $56,250 per month over the course of the next
three years. Our contract with Dearborn initially lasts for three years and is
automatically renewable for additional one year terms unless either party elects
not to renew the contract.
OUR FINANCIAL SERVICES SITE. Our next website will be aimed at the
insurance and securities professionals in the United States and Canada. We
estimate there are over 1,500,000 insurance agents and 750,000 registered
securities professionals.
Our primary product will be on-line corporate and performance-based
training delivered through our existing "just-in-time" platform combined with
the "Learning Service Provider" (LSP) platform that we plan to develop with
University.com. We will also offer continuing education accredited courses
targeted at the financial services industry. A primary focus will be corporate
training to the highly motivated self-employed, independent contractor and
partially commissioned employees who want to make more money and be more
successful. We have begun developing the financial services website and expect
to launch it in March 2001.
FUTURE SITE POSSIBILITIES. We intend to replicate our iSucceed.com site
for additional industry specific groups that are large and cohesive enough to
support an internet community. Some of the industry groups we are currently
considering are legal, accounting and healthcare, and we intend to examine
other groups in the future. As of the date of this prospectus, however, we have
not commenced the development of any specific industry sites other than our real
estate and financial services site.
We are currently working with a team of marketing experts whose job is
to develop additional sites, 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 site service.
MARKETING
As noted above, we intend to market our web sites 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, such as telephone, fax and e-mail, and through the visibility
created by the seminars hosted or sponsored by us.
To date, our marketing efforts have consisted of organizing, sponsoring
and promoting seminars in various locations throughout the United States and
Canada. These seminars feature one or two speakers who are known experts in the
real estate field and are generally attended by approximately 250 members of the
real estate industry. We promote the iSucceed.com site during the course of the
seminar and offer attendees the opportunity to subscribe to iSucceed.com on the
spot. We market these seminars through a combination of targeted direct mail,
fax and emails and by contacting real estate agents directly. As of the date of
this prospectus, we have conducted approximately 50 such seminars, and we expect
to hold approximately 80 more within the next 8 months.
We have also entered into marketing alliances with Countrywide Home
Loans, Inc., one of the nation's largest providers of home mortgage loans, and
Internet Pictures Corporation, a provider of virtual home tour services to the
real estate industry. Under our agreement with Countrywide, we will each provide
links on our web sites to the section of the other's web site that is dedicated
to real estate professionals. In addition, we and Countrywide will offer
discounted subscriptions and/or services to persons who link to one of our sites
from the other. Under our agreement with Internet Pictures Corp., Internet
Pictures Corp. will promote iSucceed.com to the agents and brokers who use its
virtual home tours services and will include iSucceed.com in certain of its
print and online advertising and marketing materials. In return, we have agreed
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to include Internet Pictures Corp. in certain of our advertising and marketing
materials, provide limited free trials to subscribers who are referred to us by
Internet Pictures Corp., and provide Internet Pictures Corp. with space at our
real estate seminars. In addition, we will each provide links to the other's
site on our respective web sites.
In the future, we intend to develop an in-house staff of sales and
marketing professionals to market and promote our products directly to large
corporations and industry groups in our target markets. We may also pursue
alternative distribution channels such as independent third party sales agents
and resellers who will promote and sell our sites in exchange for commissions.
By using a combination of direct sales techniques, in house sales and marketing
professionals and alternative distribution channels, we believe that we will be
able to more rapidly access markets and increase revenue-producing traffic on
our web sites.
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 low. 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
Direct competitors for our iSucceed.com web site include
University.com, which we are acquiring, and Learning.net, which offers online
real estate, legal and accounting training . Other companies with whom we will
compete, although indirectly, are companies who are primarily focused on
creating broader web-based communities such as 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
look to 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
internet service providers, 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 CNET, CNN/Time
Warner, Excite, Infoseek, Lycos, Netscape, Microsoft and Yahoo!.
In addition to online competitors, we face competition from 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
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
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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 propriety 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.
TECHNOLOGICAL SUPPORT
We currently have nine employees on our information technology staff.
Typically, we handle ongoing support and maintenance of our web sites in-house,
but we look to outside consultants from time to time for certain web design and
software development tasks.
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 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 the date of this prospectus, we employ 41 people, of which 40
are full-time and 1 are part time, and we intend to employ an additional eight
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.
COMPANY LOCATION AND FACILITIES
Our executive offices are located in Vista, California and consist of
approximately 20,000 square feet of office space. We lease this space pursuant
to a three year lease expiring on July 1, 2003, at the rate of $13,512 per
month.
-19-
<PAGE>
LITIGATION
We are not a party to any material litigation.
-20-
<PAGE>
MANAGEMENT
Set forth below are the directors and officers of EntrePort.
NAME AGE POSITION
---- --- --------
David J. D'Arcangelo 44 Chairman of the Board
William A. Shue 43 President, Chief Executive Officer, Chief
Financial Officer and Director
Tony Acone 56 Director
Scott Lucas 40 Director
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. Shue has an MBA in Finance from
the University of Houston.
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.
Mr. Lucas has served as a director since April 2000. Mr. Lucas has
served as the Chairman and Chief Executive Officer of YourPut.com, a private
information management company, since 1997. From 1995 to 1997, Mr. Lucas was
Chief Equity Officer for AIM Capital Management, Houston, Texas, where he held
senior fiduciary duties for 30 mutual funds containing nearly $90 billion in
assets. Prior to AIM, Mr. Lucas was Vice President at Goldman Sachs & Co., New
York, where he was responsible for marketing and strategy for Equity Derivatives
and Program Trading for the Western U.S. and Canada.
EXECUTIVE COMPENSATION
CASH COMPENSATION OF EXECUTIVE OFFICERS. The following table sets forth
the cash compensation paid to the Chief Executive Officer and to all other
executive officers for services rendered during the fiscal years ended December
31, 1999, 1998 and 1997.
-21-
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ------------------------------
NAME AND POSITION YEAR SALARY BONUS OTHER ANNUAL RESTRICTED COMMON SHARES ALL
COMPENSATION STOCK UNDERLYING OTHER
AWARDS ($) OPTIONS GRANTED COMPEN
(# SHARES) -SATION
---------------------- ------ ---------- ------- --------------- ------------ ----------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David J. D'Arcangelo, 1999 $ 70,833 -0- -0- -0- 50,000 -0-
Chairman 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 1998 $ 0 -0- -0- -0- -0- -0-
1997 $ 0 -0- -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1999 FISCAL YEAR
INDIVIDUAL GRANTS
---------------------- ---------------------------------------------------------------------------------------
NAME NUMBER OF % OF TOTAL OPTIONS/SARS EXERCISE OR EXPIRATION DATE
SECURITIES GRANTED TO EMPLOYEES IN BASE PRICE
UNDERLYING FISCAL YEAR ($/SH)
OPTIONS/SARS
GRANTED (#)
---------------------- --------------------- ------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
David J. D'Arcangelo 50,000 3% $ 1.00 April 1, 2004
William Shue 300,000 17% $ 1.00 April 1, 2004
</TABLE>
EMPLOYMENT AGREEMENTS. We have entered into employment agreements with
the Chairman of our Board of Directors, Mr. David D'Arcangelo, and our Chief
Executive Officer, Mr. William Shue. Pursuant to their agreements, Mr.
D'Arcangelo and Mr. Shue are required to devote their entire business time to
the affairs of the company. We currently pay both Mr. D'Arcangelo and Mr. Shue a
salary of $8,333.34 per month. However, the terms of Mr. D'Arcangelo's and Mr.
Shue's employment agreements provide that their salaries will be increased at
such time as we have either raised sufficient capital to do so or our profits so
warrant, as determined by Mr. D'Arcangelo or Mr. Shue, as the case may be, in
their discretion. At such time, their salaries will be increased to levels that
are comparable to executives of equivalent positions in similar public
companies, but with a minimum of $200,000 per year plus car allowance. Mr.
D'Arcangelo's employment agreement expires on April 1, 2002 and Mr. Shue's
employment agreement expires on April 18, 2002. Both agreements are subject to
automatic one year extensions unless either party chooses not to renew within 90
date of the expiration of the current term.
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 compensate such persons for the services which they
perform.
STOCK OPTION PLAN
In 1999, we adopted a Stock Option Plan permitting us to grant options
to employees, directors, consultants and independent contractors. The purpose of
the plan is to allow us to attract and retain such persons and to compensate
them in a way that links their financial interests with the interests of our
-22-
<PAGE>
shareholders. Awards under the plan may take the form of incentive stock options
or non-qualified stock options. A total of 4,000,000 shares may be issued
pursuant to the plan. As of the date of this prospectus, we had granted options
to purchase approximately 1,306,500 shares of our common stock.
Our stock option plan is administered by our a committee appointed by
our board of directors or, in the absence of such a committee, by the entire
board. The committee has, subject to specified limitations, full authority to
grant options and establish the terms and conditions of vesting and exercise.
The exercise price of incentive stock options granted under the plan is required
to be no less than the fair market value of our common stock on the date of
grant (110% in the case of a greater than 10% stockholder).
The committee may grant options for terms of up to 10 years, or 5 years
in the case of incentive stock options granted to greater than 10% stockholders.
No optionee may be granted incentive stock options such that the fair market
value of the options which first become exercisable in any one calendar year
exceeds $100,000. If an optionee ceases to be employed by us or ceases to have a
relationship with us, his or her options will expire one year after termination
by reason of death or permanent disability, thirty days after termination for
cause and three months after termination for any other reason.
Subject to the foregoing, the committee has broad discretion to set the
terms and conditions applicable to options granted under the plan. The committee
may discontinue or suspend option grants under the plan, or amend or terminate
the plan entirely, at any time. With the consent of an optionee, the committee
may also make such modification of the terms and conditions of such optionee's
option as the committee shall deem advisable. However, the committee has no
authority to make any amendment or modification to the plan or any outstanding
option which would:
o increase the maximum number of shares which may be purchased pursuant
to options granted under the stock option plan, either in the aggregate
or by an optionee, except in connection with certain antidilution
adjustments;
o change the designation of the class of employees eligible to receive
qualified options;
o extend the term of the stock option plan or the maximum option period
thereunder;
o decrease the minimum qualified option price or permit reductions of the
price at which shares may be purchased for qualified options granted
under the stock option plan, except in connection with certain
antidilution adjustments; or
o cause qualified stock options issued under the stock option plan to
fail to meet the requirements of incentive stock options under Section
422 of the Internal Revenue Code.
Any such amendment or modification shall be effective immediately,
subject to stockholder approval thereof within 12 months before or after the
effective date. No option may be granted during any suspension or after
termination of the plan.
RELATED PARTY TRANSACTIONS
In connection with our organization in October 1996, we issued
5,000,000 common shares to our founder, Mr. Eric Littman, at a price of $.001
per share. In February 1999, we hired Mr. David D'Arcangelo, currently our
Chairman of the Board, to develop our current web business. At that time, Mr.
Littman canceled, for no consideration, 4,410,000 shares of common stock and
resigned from all positions with the company.
-23-
<PAGE>
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:
o for any breach of the director's duty of loyalty to the corporation or
its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payment of a dividend or unlawful stock purchase or
redemption; or
o for any transaction from which the director derived an improper
personal benefit.
Our Articles of Incorporation provide that directors are not liable to
EntrePort 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.
The above provisions in our 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.
-24-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date of this prospectus by:
o each person who is known to be the beneficial owner of more than five
percent (5%) of our issued and outstanding shares of common stock;
o each of our directors and executive officers; and
o all of our directors and executive officers as a group.
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENTAGE OWNED
--------------------------------------------------------------------------------
David J. D'Arcangelo 2,673,334 22.8%
William A. Shue 1,500,000 12.5%
Tony Acone 175,000 1.5%
Scott Lucas 170,000 1.5%
All officers and directors 4,518,334 37.0%
as a group
----------------------------
Beneficial ownership is determined in accordance with the rules and regulations
of the SEC. The number of shares and the percentage beneficially owned by each
individual listed above include the following shares that are subject to options
that are immediately exercisable or exercisable within 60 days from the date of
this prospectus:
o 50,000 shares subject to options held by Mr. D'Arcangelo;
o 300,000 shares subject to options held by Mr. Shue;
o 150,000 shares subject to options held by Mr. Acone; and
o 20,000 shares subject to options held by Mr. Lucas.
The number of shares and the percentage beneficially owned by all officers and
directors as a group includes a total of 520,000 shares subject to options that
are immediately exercisable or exercisable within 60 days from the date of this
prospectus. The address for each of the shareholders listed above is 2790
Business Park Drive, Suite B, Vista, California 98083.
-25-
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
EntrePort is authorized to issue 50,000,000 shares of common stock,
$.001 par value, of which, as of the date of this prospectus, 11,681,213 shares
are issued and outstanding. As of the date of this prospectus, there are
outstanding options, warrants and rights which, upon exercise or conversion,
entitle their holders to acquire approximately 1,874,000 shares of common stock.
Holders of shares of common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting.
However, in the case of certain fundamental matters such as certain amendments
to the Articles of Incorporation and certain mergers and reorganizations,
Florida law and EntrePort's Bylaws require the favorable vote of at least a
majority of all outstanding shares. Stockholders are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor, and in the event of liquidation, dissolution
or winding up, to share ratably in all assets remaining after payment of
liabilities. The holders of shares of common stock have no preemptive,
conversion, subscription or cumulative voting rights.
STOCK OPTION PLAN
During the fiscal year 1999, we adopted a Stock Option Plan permitting
us to grant options to employees, directors, consultants and independent
contractors. An aggregate of 4,000,000 shares of common stock may be issued
pursuant to the plan. As of the date of this prospectus, options to purchase an
aggregate of 1,486,500 shares of common stock have been issued pursuant to the
Plan.
WARRANTS
In October 1999, we issued 10,000 warrants to a party not affiliated
with us. The warrants are exercisable until October 2002 at an exercise price of
$1.00 per share.
In February and March 2000, we conducted a private placement of common
shares. Roth Capital Partners, Inc. acted as placement agent in connection with
that offering. As part of its compensation for acting as placement agent, we
granted to Roth Capital Partners a common stock purchase warrant entitling the
holder to purchase 377,500 shares of our common stock at an exercise price of
$2.00 per share. The warrant is presently exercisable and expires in March 2005.
DIVIDENDS
We do not anticipate the payment of cash dividends on its common stock
in the foreseeable future.
TRANSFER AGENT
The transfer agent for our common stock is Computershare Investors
Services, formerly known as American Stock Transfer & Trust, Inc.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock
offered hereby will be passed upon for us by Oppenheimer Wolff & Donnelly LLP,
Newport Beach, California.
-26-
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the two years in the
period ended December 31, 1999, and for the period from October 4, 1996
(inception) through December 31, 1999, as set forth in their report. We have
included our financial statements in the registration statement in reliance on
Ernst & Young LLP's report, given their authority as experts in accounting and
auditing.
The financial statements of By Referral Only, Inc. as of and for the
nine months ended September 30, 2000 and as of and for the year ended December
31, 1999 included in this prospectus have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report with respect thereto, and are
included herein in reliance upon their authority as experts in accounting and
auditing.
The financial statements of University.com, Inc. as of and for the
years ended December 31, 1999 and 1998 included in this prospectus have been
audited by KPMG LLP, independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon their authority as
experts in accounting and auditing. The report of KPMG LLP contains an
explanatory paragraph that states that University.com, Inc. has suffered net
losses since inception, and has total stockholders' equity and working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. The financial statements of University.com, Inc. do not include any
adjustments that might result from the outcome of that uncertainty.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, file reports, proxy
statements and other information with the SEC. Our reports, proxy statements and
other information filed pursuant to the Securities Exchange Act of 1934 may be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the SEC maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC's web site is
http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933 with respect to the common stock offered hereby. As
permitted by the rules and regulations of the SEC, this prospectus, which is
part of the registration statement, omits certain information, exhibits,
schedules and undertakings set forth in the registration statement. Copies of
the registration statement and the exhibits are on file with the SEC and may be
obtained from the SEC's web site or upon payment of the fee prescribed by the
SEC, or may be examined, without charge, at the offices of the SEC set forth
above. For further information, reference is made to the registration statement
and its exhibits.
-27-
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
ENTREPORT CORPORATION
<S> <C>
Report of Independent Auditors..............................................................................F-2
Balance Sheet as of December 31, 1999 and 1998..............................................................F-3
Statements of Operations for the years ended December 31, 1999 and 1998.....................................F-4
Statements of Changes in Stockholders' Equity for the years ended December 31, 1999
and December 31, 1998.....................................................................................F-5
Statements of Cash Flows for the years ended December 31, 1999 and 1998.....................................F-6
Notes to Financial Statements...............................................................................F-7
Condensed Balance Sheet as of September 30, 2000, and December 31, 1999 (unaudited).........................F-19
Condensed Statements of Operations for the nine months ended September 30, 2000 and
September 30, 1999 (unaudited)...........................................................................F-20
Condensed Statements of Cash Flows for the nine months ended September 30, 2000 and
September 30, 1999 (unaudited)...........................................................................F-21
Notes to Unaudited Financial Statements....................................................................F-22
UNIVERSITY.COM, INC.
Independent Auditors' Report...............................................................................F-25
Audited Balance Sheets as of December 31, 1999 and 1998....................................................F-26
Audited Statements of Operations for the year ended December 31, 1999, the period from
June 12, 1998 (inception) through December 31, 1998 and the cumulative period from June 12, 1998
to December 31, 1999.....................................................................................F-27
Audited Statements of Stockholders' Equity for the year ended December 31, 1999, the period from
June 12, 1998 (inception) through December 31, 1998......................................................F-28
Audited Statements of Cash Flows for the year ended December 31, 1999,
the period from June 12, 1998 (inception) through December 31, 1998, and the cumulative period
from June 12, 1998 to December 31, 1999..................................................................F-29
Notes to Audited Financial Statements......................................................................F-30
Unaudited Balance Sheets as of September 30, 2000 and December 31, 1999....................................F-40
Unaudited Statements of Operations for the nine months ended September 30, 2000 and 1999...................F-40
Unaudited Statements of Cash Flows for the nine months ended September 30, 2000 and 1999...................F-41
Notes to Unaudited Financial Statements....................................................................F-42
BY REFERRAL ONLY, INC.
Report of Independent Auditors.............................................................................F-44
Balance Sheet as of September 30, 2000 and December 31, 1999...............................................F-45
Statements of Income for the nine months ended September 30, 2000 and the
year ended December 31, 1999.............................................................................F-46
Statements Shareholder's Deficit at September 30, 2000 and December 31, 1999...............................F-47
Statements of Cash Flows for the year ended December 31, 1999 and for the
nine months ended September 30, 2000.....................................................................F-48
Notes to Audited Financial Statements......................................................................F-49
UNAUDITED PRO FORMA INFORMATION
Introductory Note to Pro Forma Combined Condensed Financial Statements......................................P-1
Unaudited Pro Forma Balance Sheet as of September 30, 2000..................................................P-2
Unaudited Pro Forma Statements of Income for the twelve months ended December 31, 1999
and nine months ended September 30, 2000..................................................................P-3
Notes to Pro Forma Financial Statements.....................................................................P-5
</TABLE>
F-1
<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
San Diego, California
March 21, 2000
F-2
<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-3
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Operations
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
-------------------------------------
<S> <C> <C>
Revenues $ 11,911 $ -
Operating Expenses:
Research and development 97,579 -
Marketing, general and administrative 1,796,990 800
-------------------------------------
Total operating expenses 1,894,569 800
-------------------------------------
Loss from operations (1,882,658) (800)
Interest expense 9,154 -
-------------------------------------
Net loss $ (1,891,812) $ (800)
=====================================
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-4
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<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>
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-5
<PAGE>
<TABLE>
EntrePort Corporation
(a development stage company)
Statements of Cash Flows
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,891,812) $ (800)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 17,419 -
Issuance of common stock and warrants for services 421,200 -
rendered
Changes in operating assets and liabilities: - -
Other current assets (205,397) -
Accounts payable 194,268 -
Accrued liabilities and other 262,599 800
Other assets (6,690) -
---------------------------------
Net cash flows used in operating activities (1,208,413) -
INVESTING ACTIVITIES
Purchases of property and equipment (114,736) -
Investment in Sportsware Technologies, Inc. (399,500) -
Increases in website development costs (181,381) -
---------------------------------
Net cash flows used in investing activities (695,617) -
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 1,010,000 -
Payments of notes payable (295,000) -
Issuance of common stock for cash, net 2,732,363 -
Increases in deferred offering costs (85,194) -
---------------------------------
Net cash flows provided by financing activities 3,362,169 -
---------------------------------
Increase in cash and cash equivalents 1,458,139 -
Cash and cash equivalents at beginning of period - -
---------------------------------
Cash and cash equivalents at end of period $ 1,458,139 $ -
=================================
SUPPLEMENTAL DISCLOSURE OF NON CASH
FINANCING ACTIVITIES
Conversion of notes payable to common stock $ (695,000) $ -
=================================
SUPPLEMENTAL INFORMATION
Interest paid $ 5,081 $ -
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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>
YEARS ENDED DECEMBER 31,
1999 1998
-----------------------------------
<S> <C> <C>
Pro forma net loss $ (1,984,329) $ (800)
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-16
<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-17
<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-18
<PAGE>
EntrePort Corporation
Condensed Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (NOTE)
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,384,690 $ 1,458,139
Investments 399,500 399,500
Other current assets 28,372 205,397
------------------------------------
Total current assets 4,812,562 2,063,036
Property and equipment at cost, net 569,405 97,317
Website development costs, net 418,066 181,381
Other assets 440,179 91,884
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,220 $ 194,268
Accrued liabilities 187,306 263,399
Current portion of lease payable 83,136 -
Note payable to officer - 20,000
------------------------------------
Total current liabilities 700,662 477,667
Long term portion of lease payable 89,737 -
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized,
11,681,113 and 7,834,974 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 11,681 7,835
Additional paid-in capital 10,516,587 3,845,753
Deferred compensation (37,899) -
Accumulated deficit (5,040,556) (1,897,637)
------------------------------------
Total stockholders' equity 5,449,813 1,955,951
------------------------------------
$ 6,240,212 $ 2,433,618
====================================
SEE ACCOMPANYING NOTES.
Note: The Balance Sheet at December 31, 1999 is derived from the audited financial statements at that date,
but does not include all of the disclosures required by generally accepted accounting principles.
</TABLE>
F-19
<PAGE>
EntrePort Corporation
Condensed Statements of Operations
(UNAUDITED)
================================================================================
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999
------------------------------------
Revenues $ 173,947 $ 11,414
Costs and expenses:
Cost of revenues 961,308 -
Product development 419,754 88,512
Selling, general
and administrative 2,114,372 1,096,092
------------------------------------
Total costs and expenses 3,495,434 1,184,604
------------------------------------
Loss from operations (3,321,487) (1,173,190)
Interest income 178,568 -
------------------------------------
Net loss $ (3,142,919) $ (1,173,190)
====================================
Net loss per common share
(basic and diluted) $ (0.30) $ (0.20)
====================================
Weighted average shares used in
computing net loss per common
share (basic and diluted) 10,411,858 5,857,993
====================================
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
EntrePort Corporation
Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,142,919) $ (1,173,190)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 178,020 9,123
Issuance of common stock options for services 136,801 -
Issuance of common stock and warrants for services 74,000 335,900
Changes in operating assets and liabilities 265,895 100,184
------------------------------------
Net cash flows used in operating activities (2,488,203) (727,983)
INVESTING ACTIVITIES
Purchases of property and equipment (369,690) (103,259)
Purchase of investment - (200,000)
Increases in website development costs (330,736) -
------------------------------------
Net cash flows used in investing activities (700,426) (303,259)
FINANCING ACTIVITIES
Re-payments on notes payable (33,494) -
Net proceeds form short-term notes - 215,000
Issuance of common stock for cash, net 6,148,674 899,820
------------------------------------
Net cash flows provided by financing activities 6,115,180 1,114,820
------------------------------------
Increase in cash and cash equivalents 2,926,551 83,578
Cash and cash equivalents at beginning of period 1,458,139 -
------------------------------------
Cash and cash equivalents at end of period $ 4,384,690 $ 83,578
====================================
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
Capital lease obligations $ 186,367 $ -
====================================
Issuance of common shares for services $ 362,500 $ -
====================================
See accompanying notes.
F-21
</TABLE>
<PAGE>
EntrePort Corporation
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB, and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments
necessary to present fairly the financial position as of September 30, 2000 and
the results of operations for the nine month periods ended September 30, 2000
and 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed financial statements
should be read in conjunction with the financial information included in the
Company's 1999 Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The results of operations for the period ended September
30, 2000 are not necessarily indicative of the results that may be attained for
the entire fiscal year. Certain prior period amounts have been reclassified to
conform to the current period presentation.
During the three months ended June 30, 2000, the Company emerged from the
development stage, as defined in Statement of Financial Standards ("SFAS") No.7.
Certain adjustments recorded in the December 31, 1999 financial statements
relate to the nine month period ended September 30, 1999. The Company has
restated the September 30, 1999 results of operations in the accompanying
financial statements to reflect these adjustments.
2. COMPREHENSIVE LOSS
Comprehensive loss for all periods presented is the same as net loss.
3. NET LOSS PER SHARE
The Company computes net loss per share following SFAS No. 128, EARNINGS PER
SHARE. SFAS 128 requires the presentation of basic and diluted income (loss) per
share amounts. Under the provisions of SFAS No. 128, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
shareholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares, composed of incremental common shares issuable upon the
exercise of stock options, are included in diluted net income (loss) per share
to the extent these shares are dilutive. Common equivalent shares are not
included in the computation of diluted net loss per share for the three and nine
month periods ended September 30, 2000 and 1999 because the effect would be
anti-dilutive.
F-22
<PAGE>
4. FINANCING AGREEMENT
The Company entered into an equipment financing lease agreement with
International Business Machines Corporation ("IBM") in May 2000. Principal
amount due at September 30, 2000 is $172,873. The term lease payable is due in
monthly principal and interest payments of $6,928 through May 2003. Borrowings
under the financing agreement are secured by specific equipment, with interest
payable at a rate of 18.7%.
5. COMMON STOCK
The Company raised approximately $3.0 million as a result of a private placement
offering during the period August 1999 to January 2000, for which the Company
incurred $87,700 in costs related to the offering and issued 50,850 shares of
common stock to various placement agents in connection with the private
placement (valued at $101,700). These costs have been charged as a reduction to
additional paid-in-capital. In January 2000, the Company issued 140,000 shares
of common stock at $2.00 to private investors for cash proceeds of $280,000.
In March 2000, the Company sold 3,525,000 shares of common stock at $2.00 per
share to private investors for cash proceeds of $7,050,000. The Company incurred
$1,248,019 in transaction costs related to the offering. In conjunction with the
offering, warrants to purchase 377,500 shares of the Company's common stock at a
price of $2.00 were issued to the placement agent. The warrants are fully
exercisable and expire in March 2005.
In January 2000, the Company issued 5,000 shares of common stock as
consideration for the extension of a note payable. In March 2000, the Company
issued 25,000 shares of common stock to an employee as a recruiting incentive.
The Company has expensed $60,000 related to these two transactions.
In September 2000, the Company issued 100,000 shares of common stock valued at
$362,500 for financial advisory services related to prospective acquisitions.
6. STOCK OPTION PLAN
During the nine month period ended September 30, 2000, the Company granted
553,500 stock options to employees, consultants and a board member with vesting
periods ranging from immediate to three years. The options are for the purchase
of common stock of the Company at prices ranging from $2.00 to $5.00 per share.
During the nine month period ended September 30, 2000, the Company recorded
compensation expense of $136,801 related to options outstanding to employees and
consultants. Options to purchase 630,000 shares of common stock of the Company
at prices ranging from $2.00 to $7.00 per share were cancelled during the nine
month period ended September 30, 2000. No options have been exercised during the
period.
F-23
<PAGE>
7. SALE TO METROSPLASH.COM
In March 2000, the Company sold to MetroSplash.com Inc. ("MetroSplash") its ERT1
website in exchange for 100,000 restricted common shares of MetroSplash. The
unlaunched ERT1 website was targeted to the African American professional.
During the third quarter, MetroSplash was sold to Lycos, Inc., a Delaware
Corporation, for $0.99 per share. Pending the completion of the sale, the
Company has not recorded a gain on the transaction for the period ending
September 30, 2000. The Company subsequently received a partial payment of
approximately $55,000 in October 2000 which will be recorded in the fourth
quarter.
8. SUBSEQUENT EVENTS
On October 24, 2000, the Company signed a definitive agreement to acquire
University.com, Inc. ("University.com") in a stock-for stock transaction.
Pursuant to the merger agreement, the Company will issue 5,609,788 shares of its
common stock to the shareholders of University.com in exchange for all the
issued and outstanding securities of University.com. The Company will also
assume certain warrants and options issued by University.com, which upon
assumption by the Company will require the Company to issue upon their exercise
up to 1,148,430 additional shares of common stock. It is planned that the merger
will be accounted for as a purchase transaction. The acquisition is subject to
certain closing conditions, including the approval by both the Company's and
University.com's stockholders, and is expected to close prior to January 31,
2001.
On October 25, 2000, the Company signed a definitive agreement to acquire By
Referral Only, Inc. ("By Referral Only") in a stock and cash merger transaction.
Pursuant to the merger agreement, the Company will pay the shareholders of By
Referral Only $4,000,000 cash and issue to them 2,250,000 shares of the
Company's common stock in exchange for all the issued and outstanding securities
of By Referral Only. By Referral Only has no outstanding stock options or
warrants. It is planned that the merger will be accounted for as a purchase
transaction. The acquisition is subject to certain closing conditions, including
the Company's receipt of an additional $5,000,000 of capital and the approval by
the Company's stockholders. The acquisition is expected to close prior to
January 31, 2001.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
University.com, Inc.:
We have audited the accompanying balance sheets of University.com, Inc. (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
year ended December 31, 1999, the period from June 12, 1998 (inception) to
December 31, 1998, and the cumulative period from June 12, 1998 (inception) to
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 of America. 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 University.com, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for the year ended December 31, 1999, the
period from June 12, 1998 (inception) to December 31, 1998, and the cumulative
period from June 12, 1998 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
University.com, Inc. will continue as a going concern. As discussed in note 3 to
the financial statements, University.com, Inc. has incurred net losses since
inception, and has total stockholders' equity and working capital deficiency
that raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG LLP
Minneapolis, Minnesota
July 22, 2000, except as to
notes 9(b) and 9(c) which are
as of October 24, 2000 and
note 9(a) which is as of October
26, 2000
F-25
<PAGE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Balance Sheets
December 31, 1999 and 1998
ASSETS 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 136,966 111,903
Accounts receivable 1,000 --
Prepaid expenses and other current assets 38,450 --
------------ ------------
Total current assets 176,416 111,903
Property and equipment, net of accumulated 129,787 24,574
depreciation of $21,873 and $2,116,
respectively
Website development costs, net of accumulated
amortization of $13,192 and $0, respectively 111,935 116,327
Domain acquisition costs, net of accumulated
amortization of $132,500 397,500 --
Other assets 8,901 940
------------ ------------
$ 824,539 253,744
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 123,105 8,391
Accrued liabilities 76,048 125,630
Deferred revenue 82,500 --
Current maturities of notes payable (note 5) 100,000 --
------------ ------------
Total current liabilities 381,653 134,021
------------ ------------
Notes payable (note 5) 100,000 --
Commitments (note 7)
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized 10,430,605 and 7,482,575 shares
outstanding at 1999 and 1998 104,306 74,826
Additional paid-in capital 1,341,206 315,850
Notes receivable from stockholders (80,000) (160,000)
Deficit accumulated during development stage (1,022,626) (110,953)
------------ ------------
Total stockholders' equity 342,886 119,723
------------ ------------
$ 824,539 253,744
============ ============
See accompanying notes to the financial statements.
F-26
<PAGE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Operations
Year ended December 31, 1999, the period from June 12, 1998
(inception) to December 31, 1998 and the cumulative period from
June 12, 1998 (inception) to December 31, 1999
CUMULATIVE
FROM FROM
INCEPTION TO INCEPTION TO
DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ ------------ ------------
Revenues $ 7,400 -- 7,400
------------ ------------ ------------
Operating expenses:
Sales and marketing 108,913 -- 108,913
Product development 241,201 2,950 244,151
General and administrative 562,708 92,331 655,039
Stock-based compensation 6,586 16,426 23,012
------------ ------------ ------------
Total operating expenses 919,408 111,707 1,031,115
------------ ------------ ------------
Operating loss (912,008) (111,707) (1,023,715)
Interest income 335 754 1,089
------------ ------------ ------------
Net loss $ (911,673) (110,953) (1,022,626)
============ ============ ============
Basic and diluted net loss per share (0.10) (0.02) (0.12)
============ ============ ============
Weighted average shares used in
basic and diluted per share
calculation 9,384,693 6,702,096 8,428,988
============ ============ ============
See accompanying notes to the financial statements.
F-27
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Year ended December 31, 1999 and the period from June 12, 1998 to December 31, 1998
<CAPTION>
DEFICIT
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE DURING TOTAL
------------------------- PAID-IN FROM DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS STAGE EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock in private offering 7,482,575 $ 74,826 299,424 (160,000) -- 214,250
Stock options issued to non-employees to
purchase services -- -- 16,426 -- -- 16,426
Net loss -- -- -- -- (110,953) (110,953)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 7,482,575 74,826 315,850 (160,000) (110,953) 119,723
Sale of common stock in private offering 1,923,030 19,230 690,770 -- -- 710,000
Common stock issued to purchase domain name 1,000,000 10,000 320,000 -- -- 330,000
Common stock issued to purchase assets 25,000 250 8,000 -- -- 8,250
Payments received on notes receivable -- -- -- 80,000 -- 80,000
Stock options issued to non-employees to
purchase services -- -- 6,586 -- -- 6,586
Net loss -- -- -- -- (911,673) (911,673)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 10,430,605 $ 104,306 1,341,206 (80,000) (1,022,626) 342,886
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-28
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
(A Development Stage Company)
Statements of Cash Flows
Year ended December 31, 1999, the period from June 12, 1998
(inception) to December 31, 1998 and the cumulative period from
June 12, 1998 (inception) to December 31, 1999
<CAPTION>
CUMULATIVE
FROM FROM
INCEPTION TO INCEPTION TO
DECEMBER 31, DECEMBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (911,673) (110,953) (1,022,626)
Reconciliation of net loss to net cash used
in operating activities:
Depreciation and amortization 165,449 2,116 167,565
Stock options issued to non-employees to
purchase services 6,586 16,426 23,012
Changes in assets and liabilities:
Accounts receivable (1,000) -- (1,000)
Prepaid expenses and other current assets (46,411) (940) (47,351)
Website development costs (8,800) (116,327) (125,127)
Accounts payable 114,714 8,391 123,105
Accrued liabilities (49,582) 125,630 76,048
Deferred revenue 82,500 -- 82,500
----------- ----------- -----------
Net cash used in operating activities (648,217) (75,657) (723,874)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (116,720) (26,690) (143,410)
----------- ----------- -----------
Net cash used in investing activities (116,720) (26,690) (143,410)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 710,000 214,250 924,250
Proceeds from notes receivable 80,000 -- 80,000
----------- ----------- -----------
Net cash provided by
financing activities 790,000 214,250 1,004,250
----------- ----------- -----------
Net increase in cash and
cash equivalents 25,063 111,903 136,966
Cash and cash equivalents:
Beginning of period 111,903 -- --
----------- ----------- -----------
End of period $ 136,966 111,903 136,966
=========== =========== ===========
See accompanying notes to the financial statements.
</TABLE>
F-29
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(1) DESCRIPTION OF BUSINESS
University.com, Inc. (the Company) was incorporated on June 12, 1998 for
the purpose of developing eLearning portals for continuing education and
professional development. In September 1999, the Company launched its
proprietary, Internet-based learning management system called the
VIRTUAL UNIVERSITY. Using the VIRTUAL UNIVERSITY as the platform for its
eLearning solutions, the Company has developed an eLearning portal for
the Real Estate industry. At December 31, 1999, the Company was in the
development stage as its sales and marketing efforts have not yet
generated predictable or significant revenues.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with
original maturities of less than 90 days and are generally
invested in money market funds and certificates of deposit. The
Company maintains its cash in bank deposit accounts at various
financial institutions with high credit quality. The balances, at
times, may exceed federally insured limits.
(c) REVENUE RECOGNITION
Revenue derived from sales of the Company's learning management
system is recognized upon customer acceptance at the time of
installation. Revenue derived from sales of individual
Internet-based training titles are recognized at the time of sale.
Revenue derived from training titles that are packaged and sold on
a subscription basis are recognized on a straight-line basis over
the subscription term, which is generally one year. Revenue
derived from courseware development services is recognized on the
percentage of completion method over the life of each project,
which may range from three to nine months. The Company's use of
the percentage of completion method of revenue recognition
requires estimates of the degree of project completion. To the
extent these estimates prove to be inaccurate, the revenues and
gross profits, if any, reported during the periods where the
project is ongoing may not accurately reflect the final results of
the project. Provisions for any estimated losses on uncompleted
contracts are made in the period in which such losses are
determinable. Revenue is reported net of reimbursable expenses.
Finally, revenues derived from website hosting services are
recognized on a straight-line basis over the contract term for the
services. Payments received in advance of amounts earned are
recorded as deferred revenue.
(Continued)
F-30
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(d) PROPERTY AND EQUIPMENT
Fixed assets are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from
three to seven years. Leasehold improvements are amortized over
the lease term using the straight-line method.
(e) INCOME TAXES
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
expected future tax consequence of temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis.
(f) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock
exceeded the exercise price. Statement of Financial Accounting
Standard No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
No. 123), established accounting and disclosure requirements using
a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value-based method of
accounting described above and has adopted the disclosure
requirements of SFAS No. 123.
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(h) PRODUCT DEVELOPMENT
Expenditures for software and courseware development are expensed
as incurred until the point that technological feasibility and
proven marketability of the product is established. There were no
software development costs capitalized from inception to December
31, 1999.
(Continued)
F-31
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(i) WEB SITE DEVELOPMENT COSTS
The Company capitalizes certain costs associated with the
development of its Web site. The Company accounts for these costs
under Emerging Issues Task Force (EITF) Issue No. 00-02,
ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS. Under the provisions of
EITF 00-02, costs are capitalized for Web site costs incurred when
both the preliminary project stage is completed and management
deems the Web site will probably be completed and used to perform
the function intended. Capitalization of such costs ceases no
later than the point at which the Web site is substantially
complete and ready for its intended purpose. Web site development
costs are amortized using the straight-line method over a
three-year period.
(j) DOMAIN ACQUISITION COSTS
Domain acquisition costs are amortized using the straight-line
method over a three-year period.
(k) NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the
net loss by the weighted average number of common shares
outstanding during each period. Common share equivalents include
outstanding stock options and warrants. All common share
equivalents were excluded from the calculation because they were
anti-dilutive for all periods presented.
(l) NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS No. 133),
effective for the Company on January 1, 2001, establishes new
standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value.
Currently, the Company does anticipate that SFAS No. 133 will have
a material impact on the Company's financial position or results
of operations.
(3) GOING CONCERN AND MANAGEMENT'S PLAN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities and commitments in
the normal course of business. Since inception, the Company has incurred
a cumulative net loss of $1,022,626 and cash used in operating
activities was $723,874 during that same period. As of December 31,
1999, the Company had a working capital deficiency of $205,237, and
total stockholders' equity of $342,886. Additional capital will be
necessary to enable the Company to continue its operations.
The Company has begun a private placement of its common stock to raise
capital. Management believes that the amount to be raised, in addition
to expected improvements in operating results, will be adequate to fund
the cash requirements of the Company beyond December 31, 2000. In
addition, see note 9 for line of credit established in 2000 and the
Agreement and Plan of Merger entered into with another company.
(Continued)
F-32
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Computers and equipment $ 113,473 26,690
Furniture 31,011 --
Leasehold improvements 7,176 --
---------- ----------
151,660 26,690
Less accumulated depreciation
and amortization (21,873) (2,116)
---------- ----------
$ 129,787 24,574
========== ==========
(5) NOTES PAYABLE
During March 1999, the Company acquired the rights to its Internet
domain name, University.com. As consideration, the Company agreed to
issue to the seller 1,000,000 shares of Common Stock and a note payable
(the Note) in the amount of $200,000. The Note is non-interest bearing
and is payable in installments of $100,000 on April 1, 2000 and 2001.
(6) INCOME TAXES
The Company has incurred significant net operating losses and has not
reflected any tax benefit of such net operating loss carryforwards in
the accompanying financial statements.
The income tax expense (benefit) differed from the amount computed by
applying the U.S. federal income tax rate of 34% to income before income
taxes as a result of the following:
1999 1998
-------- --------
Computed "expected" tax benefit 34.0 % 34.0 %
State income tax, net of federal benefit 6.0 6.0
Change in valuation allowance (40.0) (40.0)
-------- --------
-- % -- %
======== ========
(Continued)
F-33
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31, 1999 and 1998 is
presented below:
1999 1998
---------- ----------
Deferred tax assets:
Net operating loss carryforward $ 234,000 48,000
Start-up costs 214,000 37,000
Other (39,000) (40,000)
---------- ----------
Total gross deferred tax assets 409,000 45,000
Valuation allowance (409,000) (45,000)
---------- ----------
Net deferred tax assets $ -- --
========== ==========
In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible.
Based on the level of historical taxable income and projections of
future taxable income over the periods in which the deferred tax assets
are deductible, management does not believe that it is more likely than
not the Company will realize the benefits of these deductible
differences. Accordingly, the Company has provided a valuation allowance
against the gross deferred tax assets as of December 31, 1999.
As of December 31, 1999, the Company has reported U.S. net operating
loss carryforwards of approximately $584,000. The federal net operating
loss carryforwards begin to expire in the year 2018.
Federal tax laws impose significant restrictions on the utilization of
net operating loss carryforwards in the event of a change in ownership
of the Company, which constitutes an "ownership change" as defined by
the Internet Revenue Code, Section 382. The Company's net operating loss
carryforward may be subject to the above limitations.
(7) COMMITMENTS
LEASES
The Company leases office space and equipment under various operating
lease agreements, the last of which expires in September 2004.
(Continued)
F-34
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
At December 31, 1999, future minimum lease payments under noncancelable
operating leases were as follows:
YEAR ENDING
DECEMBER 31,
--------------------
2000 $ 115,000
2001 168,000
2002 172,000
2003 151,000
-------------
Total future minimum lease payments $ 606,000
=============
Rent expense was approximately $34,565 and $1,880 for the years ended
December 31, 1999 and 1998, respectively.
(8) STOCKHOLDERS' EQUITY
(a) COMMON STOCK ISSUED
The holders of common stock are entitled to one vote for each
share on all matters submitted to a vote of stockholders. Holders
of common stock have no preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions
applicable thereto. The outstanding shares of common stock are
fully paid and nonassessable.
(b) STOCK OPTIONS
At December 31, 1999, the Company had 2,000,000 shares of common
stock reserved under its 1999 Stock Option Plan. The plan provides
for grants of incentive and nonqualified stock options to
officers, employees and independent contractors. Furthermore, the
Company may grant nonqualified options outside of this plan. These
stock options generally vest evenly over a three-year period and
are exercisable over periods up to ten years from date of grant.
The Board of Directors establishes all terms and conditions of
each grant. Stock options are granted at or above fair market
value as determined by the Board of Directors at each grant date.
(Continued)
F-35
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
Option transactions under these plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
OPTIONS PRICE EXERCISE PRICE
OUTSTANDING PER SHARE PER SHARE
------------ ------------ --------------
<S> <C> <C> <C>
Options outstanding at December 31, 1998 125,000 $0.33 0.33
Granted 792,500 0.66-1.00 0.79
Canceled --
------------
Options outstanding at December 31, 1999 917,500
============
Exercisable at December 31, 1999 208,500
============
</TABLE>
The table above includes 38,500 and 125,000 stock options issued to
non-employees to purchase services in 1999 and 1998, respectively. These options
have exercise prices ranging from $0.33 to $0.66 per share and expire within
three years from the date of grant. The Company recognized an expense of $6,586
and $16,426 in 1999 and 1998, respectively, based on the fair value of the stock
options using the Black Scholes model.
The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. As
allowed by SFAS No. 123, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense related thereto. If the Company had elected
to recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, the 1999 net loss would have been
increased to the pro forma amount indicated in the following table:
Net loss--as reported $ (911,673)
Net loss--pro forma (923,923)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
1999
---------
Expected dividend level 0%
Expected stock price volatility 0%
Risk-free interest rate 5.00%
Expected life of options 3 years
(Continued)
F-36
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(9) SUBSEQUENT EVENTS
(a) LINE OF CREDIT
In July 2000, the Company entered into a line of credit for up to
$1,000,000 from a bank (the Line). Amounts drawn from the Line
bear interest at 9.5%, with interest due monthly, and are payable
in full on January 24, 2001.
In connection with this financing, the Company issued warrants to
purchase a total of 500,000 shares of common stock. The warrants
were issued to one outside investor and one member of the
Company's Board of Directors (the Guarantors), who are
guaranteeing the Company's repayment of the Line. The estimated
fair value of the warrants of $629,147 was credited to additional
paid-in capital and will amortized over the anticipated
outstanding period of the Line, or six months, as interest
expense.
On October 26, 2000, the Company entered into an agreement with
the Guarantors, whereby the Guarantors agreed to pay the
outstanding principal and accrued interest on the Company's bank
credit line (the Payoff Amount) prior to the closing of the merger
transaction with EntrePort. In exchange, the Company has agreed to
issue to the Guarantors the number of shares of common stock of
the Company equal to the Payoff Amount divided by $0.50. The
Company anticipates that it will issue between 1,800,000 and
2,000,000 shares of its common stock to the Guarantors in
connection with this agreement. At the time of the payoff, the
Company will recognize an expense of between $1,872,000 to
$2,080,000 or a $1.04 per share as a result of the discount on the
common stock being granted to the Guarantors.
(b) AGREEMENT AND PLAN OF MERGER
On October 24, 2000, the Company signed a definitive agreement to
be acquired by EntrePort Corporation (EntrePort) in a
stock-for-stock transaction. Pursuant to the merger agreement, the
Company's shareholders will receive a total of 5,609,788 shares of
EntrePort common stock valued at $20,545,847 in exchange for all
the issued and outstanding shares of common stock on the closing
date of the merger. EntrePort will also assume certain warrants
and options issued by the Company, which upon assumption by
EntrePort will require EntrePort to issue upon their exercise up
to 1,148,430 additional shares of common stock. The acquisition is
subject to certain closing conditions, including the approval by
both the Company's and EntrePort's stockholders.
(Continued)
F-37
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1999 and 1998
(c) OTHER EQUITY TRANSACTIONS
In March 2000, the Company closed a private placement of its
common stock whereby 1,322,000 shares were sold at a price of
$1.00 per share. The net proceeds from the private placement were
used to develop additional internet training products, hire
personnel and for general working capital purposes.
On July 30, 2000, the Company entered into a three-year agreement
to license real estate training content from a third party. The
terms of the license agreement require the Company to issue
200,000 shares of common stock, a warrant to purchase 25,000
shares of common stock at an exercise price of $1.00 per share,
and cash consideration totaling $100,000, of which $50,000 was due
at contract signing and the remaining $50,000 due on December 31,
2000. The license agreement also provides for minimum annual sales
royalties of $50,000 for the years 2001 and 2002, to be payable on
or before December 31, 2001 and 2002, respectively.
In August 2000, the Company canceled 212,121 shares of previously
issued common stock relating to the cancellation of the unpaid
balance on notes receivable from stockholders that existed as of
December 31, 1999.
Following is a reconciliation of common stock outstanding from
December 31, 1999 to October 24, 2000:
Shares outstanding at December 31, 1999 10,430,605
Shares issued in connection with a private
placement 1,322,000
Shares issued to license real estate training
content 200,000
Shares canceled due to cancellation of notes
receivable (212,121)
-------------
Shares outstanding at October 24, 2000 11,740,484
=============
F-38
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
Balance Sheets
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,316 136,966
Accounts receivable, net of allowance for doubtful
accounts of $6,200 and $0, respectively 34,453 1,000
Prepaid expenses and other current assets 10,023 38,450
Debt issue cost 419,430 --
------------ ------------
Total current assets 509,222 176,416
------------ ------------
Property and equipment, net of accumulated
depreciation of $72,160 and $21,873, respectively 203,235 129,787
Website development costs, net of accumulated
amortization of $44,674 and $13,192, respectively 80,454 111,935
Domain acquisition costs, net of accumulated
amortization of $265,000 and $132,500, respectively 265,000 397,500
Other assets 7,546 8,901
------------ ------------
$ 1,065,457 824,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,177 123,105
Accrued liabilities 109,228 76,048
Deferred revenue 14,805 82,500
Line of credit 359,020 --
Current maturities of notes payable 100,000 100,000
------------ ------------
Total current liabilities 611,230 381,653
------------ ------------
Notes payable -- 100,000
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
no shares outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 11,740,484 and 10,385,605 shares
outstanding 117,405 104,306
Additional paid-in capital 3,526,762 1,341,206
Notes receivable from stockholders -- (80,000)
Accumulated deficit (3,189,940) (1,022,626)
------------ ------------
Total stockholders' equity 454,227 342,886
------------ ------------
$ 1,065,457 824,539
============ ============
See accompanying notes to the financial statements.
</TABLE>
F-39
<PAGE>
UNIVERSITY.COM, INC.
Statements of Operations
(Unaudited)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------- -------------
Revenues $ 223,423 7,000
------------- -------------
Operating expenses:
Cost of revenues 84,135 --
Sales and marketing 186,024 43,790
Product development 1,004,552 152,491
General and administrative 816,609 368,819
Stock-based compensation 86,051 4,939
------------- -------------
Total operating expenses 2,177,371 570,039
------------- -------------
Operating loss (1,953,948) (563,039)
Interest income (expense), net (211,768) 290
Loss on disposal of property and equipment (1,598) --
------------- -------------
Net loss $ (2,167,314) (562,749)
============= =============
Basic and diluted net loss per share (0.19) (0.06)
============= =============
Weighted average shares used in basic
and diluted per share calculation 11,477,890 9,034,367
============= =============
See accompanying notes to the financial statements.
F-40
<PAGE>
<TABLE>
UNIVERSITY.COM, INC.
Statements of Cash Flows
(Unaudited)
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,167,314) (562,750)
Reconciliation of net loss to net cash used by operating
activities:
Depreciation and amortization 214,353 106,382
Loss on disposal of property and equipment 1,598 --
Noncash interest expense related to warrants 209,716 --
Warrants and stock options issued to non-employees
to purchase services and training content 117,508 4,939
Common stock issued to acquire training content 200,000 --
Changes in assets and liabilities:
Accounts receivable (33,453) --
Prepaid expenses and other assets 29,782 (7,961)
Accounts payable (94,928) 129,849
Accrued liabilities 33,180 (24,736)
Deferred revenue (67,695) --
------------ ------------
Net cash used in operating activities (1,557,253) (354,277)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (129,417) (77,901)
Proceeds from sale of property and equipment 4,000 --
------------ ------------
Net cash used in investing activities (125,417) (77,901)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,322,000 360,000
Proceeds from bank line of credit 359,020 --
Repayment of notes payable (100,000) --
Proceeds from notes receivable 10,000 60,000
------------ ------------
Net cash provided by financing activities 1,591,020 420,000
------------ ------------
Net decrease in cash and cash equivalents (91,650) (12,178)
Cash and cash equivalents:
Beginning of period 136,966 111,903
------------ ------------
End of period $ 45,316 99,725
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 2,081 --
============ ============
See accompanying notes to the financial statements.
</TABLE>
F-41
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and, in the opinion of management,
contain all adjustments, consisting of normal recurring adjustments necessary to
present fairly the financial position as of September 30, 2000 and the results
of operations for the nine month periods ended September 30, 2000 and 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed financial statements
should be read in conjunction with the Company's audited financial statements
for the years ended December 31, 1999 and 1998. The results of operations for
the period ended September 30, 2000 are not necessarily indicative of the
results that may be attained for the entire fiscal year. Certain prior period
amounts have been reclassified to conform to the current period presentation.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during each period. Common
share equivalents include outstanding stock options and warrants. All common
share equivalents were excluded from the calculation because they were
anti-dilutive for all periods presented.
3. LINE OF CREDIT
In July 2000, the Company entered into a line of credit for up to $1,000,000
from a bank (the Line). Amounts drawn from the Line bear interest at 9.5%, with
interest due monthly, and are payable in full on January 24, 2001.
In connection with this financing, the Company issued warrants to purchase a
total of 500,000 shares of common stock. The warrants were issued to one outside
investor and one member of the Company's Board of Directors (the Guarantors),
who are guaranteeing the Company's repayment of the Line. The estimated fair
value of the warrants of $629,147 was credited to additional paid-in capital and
will amortized over the anticipated outstanding period of the Line, or six
months, as interest expense.
On October 26, 2000, the Company entered into an agreement with the Guarantors,
whereby the Guarantors agreed to pay the outstanding principal and accrued
interest on the Company's bank credit line (the Payoff Amount) prior to the
closing of the merger transaction with EntrePort. In exchange, the Company has
agreed to issue to the Guarantors the number of shares of common stock of the
Company equal to the Payoff Amount divided by $0.50. The Company anticipates
that it will issue between 1,800,000 and 2,000,000 shares of its common stock to
the Guarantors in connection with this agreement. At the time of the payoff, the
Company will recognize an expense of between $1,872,000 to $2,080,000 or a $1.04
per share as a result of the discount on the common stock being granted to the
Guarantors. On November 14, 2000 there was approximately $630,000 withdrawn from
the Line.
F-42
<PAGE>
UNIVERSITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
September 30, 2000
4. EQUITY TRANSACTIONS
In March 2000, the Company closed a private placement of its common stock
whereby 1,322,000 shares were sold at a price of $1.00 per share. The net
proceeds from the private placement were used to develop additional internet
training products, hire personnel and for general working capital purposes.
On July 30, 2000, the Company entered into a three-year agreement to license
real estate training content from a third party. The terms of the license
agreement require the Company to issue 200,000 shares of common stock, a warrant
to purchase 25,000 shares of common stock at an exercise price of $1.00 per
share and were valued at $31,457, and cash consideration totaling $100,000, of
which $50,000 was due at contract signing and the remaining $50,000 due on
December 31, 2000. The cost of the content was expensed to product development.
The license agreement also provides for minimum annual sales royalties of
$50,000 for the years 2001 and 2002, to be payable on or before December 31,
2001 and 2002, respectively.
In August 2000, the Company canceled 212,121 shares of previously issued common
stock relating to the cancellation of the unpaid balance on notes receivable
from stockholders that existed as of December 31, 1999.
5. STOCK OPTIONS
During the nine month period ended September 30, 2000, the Company granted
935,500 stock options to employees, consultants and a board member with vesting
periods ranging from immediate to three years. The options are for the purchase
of common stock of the Company at $1.00 per share. During the nine month period
ended September 30, 2000, the Company recorded compensation expense of $20,783
related 163,500 options issued to consultants. Options to purchase 16,500 shares
of common stock of the Company at prices ranging from $.66 to $1.00 per share
were cancelled during the nine-month period ended September 30, 2000. No options
have been exercised during the period.
6. WARRANTS
During the nine month period ended September 30, 2000, the Company granted
610,000 warrants to consultants, a board member and an outside investor with
vesting periods ranging from immediate to three years. The warrants are for the
purchase of common stock of the Company at $1.00 per share. During the nine
month period ended September 30, 2000, the Company recorded an expense of
$96,725 related to the warrants granted. No warrants have been exercised during
the period.
7. AGREEMENT AND PLAN OF MERGER
On October 24, 2000, the Company signed a definitive agreement to be acquired by
EntrePort Corporation (EntrePort) in a stock-for-stock transaction. Pursuant to
the merger agreement, the Company's shareholders will receive a total of
5,609,788 shares of EntrePort common stock valued at $20,545,847 in exchange for
all the issued and outstanding shares of common stock on the closing date of the
merger. EntrePort will also assume certain warrants and options issued by the
Company, which upon assumption by EntrePort will require EntrePort to issue upon
their exercise up to 1,148,430 additional shares of common stock. The
acquisition is subject to certain closing conditions, including the approval by
both the Company's and EntrePort's stockholders.
F-43
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
By Referral Only, Inc.
We have audited the accompanying balance sheets of By Referral Only, Inc. (the
"Company") as of September 30, 2000 and December 31, 1999 and the related
statements of income, shareholders' deficit and cash flows for the nine months
ended September 30, 2000 and the year ended 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 By Referral Only, Inc. at
September 30, 2000 and December 31, 1999, and the results of its operations and
its cash flows for the nine months ended September 30, 2000 and the year ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/S/ Ernst & Young LLP
San Diego, California
November 20, 2000
F-44
<PAGE>
By Referral Only, Inc.
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 322,025 $ 757,835
Accounts receivable, net of allowance for doubtful accounts of
$198,175 and $200,000 at September 30, 2000 and December 31,
1999, respectively 528,961 360,454
Advances to stockholders - 564,658
Other current assets 11,475 45,751
------------------------------------
Total current assets 862,461 1,728,698
Property and equipment, net 204,334 338,818
Other assets 6,337 4,337
------------------------------------
Total assets $ 1,073,132 $ 2,071,853
====================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 414,378 $ 889,871
Accrued compensation 250,085 217,490
Unearned revenue 902,465 1,727,505
Current portion of notes payable 18,720 10,466
Current portion of capital leases 11,202 18,304
------------------------------------
Total current liabilities 1,596,850 2,863,636
Notes payable, net of current position 22,139 21,180
Capital Leases, net of current position - 6,499
Other Long term liabilities - 32,813
Shareholders' deficit:
Common Stock, no par value; 100,000 shares authorized; 1,500
shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 10,100 10,100
Common stock issuable 500,000 500,000
Deferred stock compensation (400,000) (475,000)
Accumulated deficit (655,957) (887,375)
------------------------------------
Total shareholders' deficit (545,857) (852,275)
------------------------------------
Total liabilities and shareholders' deficit $ 1,073,132 $ 2,071,853
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-45
<PAGE>
By Referral Only, Inc.
Statements of Income
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------------------
Net revenues $ 8,221,361 $ 11,982,931
Cost of revenues 5,010,661 6,246,562
-------------------------------------
Gross profit 3,210,700 5,736,369
Selling, general and administrative 2,763,978 5,618,482
-------------------------------------
Income from operations 446,722 117,887
Interest income 17,722 28,140
Interest expense (8,543) (12,707)
-------------------------------------
Net income $ 455,901 $ 133,320
=====================================
SEE ACCOMPANYING NOTES.
F-46
<PAGE>
By Referral Only, Inc.
Statements of Shareholder's Deficit
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK DEFERRED STOCK ACCUMULATED TOTAL SHAREHOLDERS
SHARES AMOUNT ISSUABLE COMPENSATION DEFICIT DEFICIT
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,500 $ 10,100 $ - $ - $ (890,695) $ (880,595)
Issuance of stock purchase
agreement - - 500,000 (500,000) - -
Amortization of stock
compensation - - - 25,000 - 25,000
Shareholder distributions - - - - (130,000) (130,000)
Net income - - - - 133,320 133,320
------------------------------------------------------------------------------------------------
Balance at December 31, 1999 1,500 10,100 500,000 (475,000) (887,375) (852,275)
Amortization of stock
compensation - - - 75,000 - 75,000
Shareholder distributions - - - - (224,483) (224,483)
Net income - - - - 455,901 455,901
------------------------------------------------------------------------------------------------
Balance at September 30, 2000 1,500 $ 10,100 $ 500,000 $ (400,000) $ (655,957) $ (545,857)
================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-47
<PAGE>
By Referral Only, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ 455,901 $ 133,320
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 141,981 247,786
Stock-based compensation 75,000 25,000
Changes in operating assets and liabilities:
Accounts receivable (168,507) 770,146
Unearned revenue (825,040) (741,470)
Other current assets 34,276 3,637
Accounts payable and accrued expenses (508,306) 438,277
Accrued compensation 32,595 (30,638)
Other assets (2,000) 1,621
------------------------------------
Net cash (used in)/provided by operating activities (764,100) 847,679
INVESTING ACTIVITIES
Purchase of property and equipment (2,984) (167,053)
------------------------------------
Net cash used in investing activities (2,984) (167,053)
FINANCING ACTIVITIES
Distributions to shareholders - (130,000)
Decrease (increase) in distributions and advances to shareholders 357,017 (150,338)
Payments of notes and capital leases (25,743) (26,745)
------------------------------------
Net cash provided by/(used in) financing activities 331,274 (307,083)
------------------------------------
Net (decrease) increase in cash and cash equivalents (435,810) 373,543
Cash and cash equivalents at beginning or period 757,835 384,292
------------------------------------
Cash and cash equivalents at end of period $ 322,025 $ 757,835
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Taxes paid $ - $ 12,680
====================================
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY
Property and equipment acquired through notes payable and
capital leases $ 21,355 $ 67,283
====================================
Property and equipment distributed to shareholders $ 16,842 $ -
====================================
Distribution of advances to shareholders $ 207,641 $ -
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-48
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements
September 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
By Referral Only, Inc. (the "Company") is incorporated under the laws of the
State of California. The Company is a training institute, teaching realtors and
mortgage professionals how to build a referral-based business. Realtors and
mortgage lenders attend "Main Event" seminars nationwide. "Main Event",
attendees are given the opportunity to sign up for a minimum of one year in the
"Coaching Club", where continuing education is made available through quarterly
meetings, conference calls and other training materials and tools.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with a maturity of three
months or less from the date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (three to
five years), except leasehold improvements which are amortized over the lesser
of the estimated life of the asset or the remaining lease term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts shown for cash and cash equivalents and accounts receivable
approximate their fair values based upon the relatively short-term maturities of
these instruments.
F-49
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. Net income (loss)
and other comprehensive income, including foreign currency translation
adjustments, and unrealized gains and losses on investments shall be reported,
net of their related tax effect, to arrive at comprehensive income (loss). To
date there have been no differences between the Company's net income and its
total comprehensive income for nine months ended September 30, 2000 and for the
year ended December 31, 1999.
REVENUE RECOGNITION
The Company's "Main Event" seminars range in length from two to three days.
Revenues from Main Events are recognized when the seminars are delivered.
Members in the Company's coaching club program generally sign up for a period of
one year. The revenues related to the coaching club are recognized on a pro rata
basis over the period the services are provided, generally one year. Unearned
revenues represent cash received in advance of the services being rendered.
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 reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS
Advertisting costs are expensed as they occur. The costs for the nine months
ended September 30, 2000 and for the year ended December 31, 1999 were not
material.
F-50
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company is a S-Corporation for federal and state income tax purposes. Under
S-Corporation status, all taxable income and losses are passed through to the
shareholders for federal and state purposes.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense in accordance with SFAS 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Under APB 25, compensation cost is recognized over the
vesting period based on the excess, if any, on the date of grant of the
estimated fair value of the Company's stock over the employee's exercise price.
When the exercise price of the employee stock awards is less than the fair value
of the underlying stock on the grant date, deferred stock compensation is
recognized and amortized to expense on a straight-line basis over the vesting
period of the individual award, which is generally five years. Stock-based
awards issued to non-employees are measured using fair value-based methods and
are expensed over the period services are provided.
RECENT ACCOUNTING PRONOUNCEMENTS
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements files with the Securities and
Exchange Commission. The Company was originally required to implement SAB No.
101 during the nine months ended September 30, 2000; however, in June 2000, the
Securities and Exchange Commission amended SAB No. 101 to delay the required
implementation date. As a result, the Company must now implement the related
guidelines in the quarter beginning October 1, 2000. The impact of SAB No. 101
it is not expected to have a material effect on the Company's operations.
F-51
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which will be
effective for the Company on January 1, 2001. SFAS No. 133 will require
recognition of all derivatives on the Company's balance sheet at fair value. The
Company believes the adoption of SFAS No. 133 will not have a material effect on
the financial statements.
2. ADVANCES TO STOCKHOLDERS
Advances are made to Stockholders to enable them to pay their estimated personal
income taxes on their proportionate share of the Company's taxable income. These
advances are due upon demand, bear interest at 6% per annum, and are unsecured.
The advances may be reclassified to shareholder distributions, as actual income
is determined. Net stockholder advances totaled $564,658 at December 31, 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------------------------------
Vehicles $ 57,855 $ 197,639
Machinery and equipment 119,935 119,935
Furniture and fixtures 116,140 116,140
Computers and software 441,930 438,946
Leasehold Improvements 133,618 133,618
---------------------------------------
869,478 1,006,278
Accumulated depreciation 665,144 667,460
---------------------------------------
Total property and equipment $ 204,334 $ 338,818
=======================================
F-52
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
4. LEASE COMMITMENTS
The Company leases its facility under a noncancelable lease. Rent expense was
$60,892 and $77,874 for the nine months ended September 30, 2000 and for the
year ended December 31, 1999 respectively. At September 30, 2000 annual minimum
future payments under the Company's capital and operating leases are as follows:
CAPITAL OPERATING
Twelve months ending September 30, LEASES LEASES
------------ ------------
2001 $ 11,562 $ 61,213
2002 - 43,985
2003 - 12,789
------------ ------------
Total minimum lease payments $ 11,562 $ 117,987
Amount representing interest 360 ============
------------
Present value of minimum capital lease
obligations $ 11,202
============
The cost of equipment acquired under capital leases is included in property and
equipment, and amounted to $34,783 and accumulated amortization was $20,290 and
$11,594 as of September 30, 2000 and December 31, 1999 respectively.
F-53
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
5. FINANCING ARRANGEMENTS
The following summarizes the Company's long-term notes payable arrangements:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Note payable to finance company, secured by vehicle,
payable in monthly installments of $601 including
interest at 0.9% per annum, due May 2003 $ 17,989 $ -
Note payable to finance company, secured by a vehicle,
payable in monthly installments of $960 including
interest at 3.9% per annum, due November 2002 22,870 31,646
------------ -----------
40,859 31,646
Less current portion 18,720 10,466
------------ -----------
$ 22,139 $ 21,180
============ ===========
</TABLE>
Annual principal maturities of the notes payable as of September 30, 2000 are a
follows:
2001 $ 18,720
2002 18,345
2003 3,794
------------
$ 40,859
============
F-54
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK
In October of 1999 the Company entered into a stock purchase and restricted
stock agreement with an employee to purchase 79 shares of the Company's stock.
The shares of the stock were not issued as of September 30, 2000. The stock
issuable under this agreement vests 20% per year over a five-year period. The
Company has the option to repurchase, at the original purchase price, unvested
shares in the event of termination of employment. The Company also has the
option to repurchase, at the fair value of such stock on the date of separation,
vested shares in the event of termination. The Common stock issuable under the
stock purchase agreement was offered below the estimated fair value, for
financial reporting purposes, of the stock at the time of the agreement. As a
result the Company has recorded deferred compensation in the amount $500,000
during the year ended December 31, 1999. The deferred compensation is being
amortized to expense on a straight-line basis. Such amortization totaled $75,000
and $25,000 for the nine-months ended September 30, 2000 and for the year ended
December 31, 1999 respectively.
7. EMPLOYEE SAVINGS PLAN
In January 2000 the Company established a qualified 401(k), employee saving and
profit sharing plan for the benefit of its employees. Substantially all
employees are eligible to participate in the plan. Under the plan, employees can
contribute and defer taxes on compensation contributed. The Company also matches
50% of the participant's contribution up to 9% of the participant's
compensation. The Company also has the option to make an additional profit
sharing contribution to the plan. For the nine months ended September 30, 2000
the Company contributed $42,337.
F-55
<PAGE>
By Referral Only, Inc.
Notes to Financial Statements (continued)
8. LITIGATION
The Company is involved in litigation filed against it in 1998 and 2000, which
is currently scheduled for arbitration in January 2001. The court actions and
the arbitration involve claims against BRO for copyright infringement, breach of
contracts, conspiracy, fraud, misappropriation, wrongful death, unjust
enrichment and tortuous interferences. The amounts claimed begin at $4 million
and also ask for reimbursement of attorney fees, actual and punitive damages for
some matters. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of all such pending
matters will not have a material adverse affect on the Company's financial
position or liquidity.
In January 2000 the Company entered into a settlement agreement related to a
copyright lawsuit filed against the Company. The agreement requires the Company
to pay $105,000, beginning in February 2000, two monthly installments of $15,000
and 16 monthly installments of $4,688 thereafter. The accrued settlement costs
of $46,875 and $105,000 are included in accrued expenses at September 30, 2000
and December 31, 1999 respectively.
9. SUBSEQUENT EVENTS
In October 2000 the Company signed a definitive agreement to be acquired by
EntrePort Corporation. Pursuant to the definitive agreement the Company
shareholders will exchange all of the issued and outstanding common stock for
$4,000,000 in cash and 2,250,000 shares of Entreport Corporation stock. The sale
is subject to certain closing conditions including EntrePort Corporation's
receipt of $5,000,000 of capital financing. The shareholders of the Company have
agreed to indemnify EntrePort against any adverse outcome from the arbitration
discussed above.
F-56
<PAGE>
ENTREPORT CORPORATION AND UNIVERSITY.COM, INC. AND BY REFERRAL ONLY, INC
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information gives
effect to the proposed acquisition by EntrePort of University.com and By
Referral Only which will be accounted for under the purchase method of
accounting. The unaudited pro forma combined condensed balance sheet is based on
the individual historical balance sheets of EntrePort, University.com and By
Referral Only and has been prepared to reflect the acquisition by EntrePort of
University.com and By Referral Only as if the acquisitions had occurred as of
September 30, 2000. The unaudited pro forma combined condensed statement of
operations is based on the individual historical statements of operations of
EntrePort and University.com and By Referral Only and combines the results of
operations of EntrePort for the year ended December 31, 1999 and the nine-month
period ended September 30, 2000 with the results of operations for
University.com and By Referral Only as if the acquisitions had occurred as of
January 1, 1999.
The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or operating results that would have been achieved if the
acquisition had been completed as of the beginning of the period presented, nor
is it necessarily indicative of the future financial position or operating
results of EntrePort. The pro forma combined condensed financial information
does not give effect to any cost savings (other than those discussed in 2(c) to
the Unaudited Pro Forma Combined Condensed Financial information notes) or
restructuring and integration costs that may result from the integration of
EntrePort's and University.com's and By Referral Only's operations. The costs
related to restructuring and integration have not yet been determined.
The unaudited pro forma combined condensed financial information should be read
in conjunction with the audited financial statements and accompanying notes of
EntrePort and the audited financial statements and accompanying notes of
University.com and By Referral Only which are included elsewhere in the proxy
statement herein.
The unaudited condensed financial statements as of and for the nine months ended
September 30, 2000 have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and in the
opinion of EntrePort's and University.com's respective managements include all
adjustments necessary for a fair presentation of the interim financial
information for the period presented.
P-1
<PAGE>
EntrePort Corporation
Pro Forma Condensed Combined Balance Sheet
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
------------- ---------- ----------- --------------------------------
ASSETS Historical Adjustments Consolidated
-------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,384,690 $ 45,316 $ 322,025 $ 472,684 (B) $ 5,224,715
Accounts receivable -- 34,453 528,961 -- 563,414
Investments 399,500 -- -- -- 399,500
Debt issue costs -- 419,430 -- (419,430)(A) --
Other current assets 28,372 10,023 11,475 -- 49,870
------------- ----------- ----------- ------------ ------------
Total current assets 4,812,562 509,222 862,461 53,254 6,237,499
Property and equipment at cost, net 569,405 203,235 204,334 -- 976,974
Website development costs, net 418,066 80,454 -- -- 498,520
Domain acquisition costs, net -- 265,000 -- (265,000)(B) --
Acquired intangibles and goodwill, net -- -- -- 26,427,854 (B) 26,427,854
Other assets 440,179 7,546 6,337 (418,000)(B) 36,062
------------- ----------- ----------- ------------ ------------
$ 6,240,212 $1,065,457 $1,073,132 $25,798,108 $34,176,909
============= =========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 430,220 $ 28,177 $ 414,378 -- $ 872,775
Accrued liabilities 187,306 109,228 280,007 -- 576,541
Deferred revenue -- 14,805 902,465 -- 917,270
Line of credit -- 359,020 -- (359,020)(A) --
Current portion of notes and leases payable 83,136 100,000 -- -- 183,136
------------- ----------- ----------- ------------ ------------
Total current liabilities 700,662 611,230 1,596,850 (359,020) 2,549,722
Long term portion of notes and leases payable 89,737 -- 22,139 -- 111,876
Deferred income tax liability -- -- -- 2,000,000 (C) 2,000,000
Stockholders' equity:
Preferred stock -- -- -- 1,860 (B) 1,860
Common stock 11,681 117,405 10,100 (119,645)(B) 19,541
Common stock issuable -- -- 500,000 (500,000) --
Additional paid-in capital 10,516,587 3,526,762 -- 20,890,389 (A),(B) 34,933,738
Deferred compensation (37,899) -- (400,000) 38,627 (B) (399,272)
Accumulated deficit (5,040,556) (3,189,940) (655,957) 3,845,897 (B) (5,040,556)
------------- ----------- ----------- ------------ ------------
Total stockholders' equity 5,449,813 454,227 (545,857) 24,157,128 29,515,311
------------- ----------- ----------- ------------ ------------
$ 6,240,212 $1,065,457 $1,073,132 $25,798,108 $34,176,909
============= =========== =========== ============ ============
</TABLE>
P-2
<PAGE>
EntrePort Corporation
Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
-------------- ---------- ----------- ---------------------------------
Historical Adjustments Consolidated
-------------------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 11,911 $ 7,400 $11,982,931 $ -- $ 12,002,242
Costs and expenses:
Cost of revenues -- -- 6,246,562 6,246,562
Product development 97,579 241,201 -- -- 338,780
Selling, general and administrative 1,796,990 678,207 5,618,482 4,292,096 (C) 12,385,775
------------ ------------ ------------ ------------ ---------------
Total costs and expenses 1,894,569 919,408 11,865,044 4,292,096 18,971,117
Loss from operations (1,882,658) (912,008) 117,887 (4,292,096) (6,968,875)
Interest income (expense), net (9,154) 335 15,433 -- 6,614
------------ ------------ ------------ ------------ ---------------
Earnings (loss) before taxes (1,891,812) (911,673) 133,320 (4,292,096) (6,962,261)
Provision for income taxes -- -- -- 400,000 (D) 400,000
------------ ------------ ------------ ------------ ---------------
Net loss $(1,891,812) $ (911,673) $ 133,320 $(3,892,096) $ (6,562,261)
============ ============ ============ ============ ===============
Basic loss per share $ (0.31) $ (0.47)
Diluted loss per share (4) $ (0.31) $ (0.47)
Weighted average shares outstanding:
Basic 6,068,605 7,859,788 (E) 13,928,393
Diluted 6,068,605 7,859,788 (E) 13,928,393
</TABLE>
P-3
<PAGE>
EntrePort Corporation
Pro Forma Combined Condensed Statement of Operations
For The Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
EntrePort University By Referral
Corporation .com Inc. Only, Inc. Pro Forma
----------------------- ----------- --------------------------------
Historical Adjustments Consolidated
------------------------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 173,947 $ 223,423 $8,221,361 $ -- $ 8,618,731
Costs and expenses:
Cost of revenues 961,308 84,135 5,010,661 -- 6,056,104
Product development 419,754 1,004,552 -- -- 1,424,306
Selling, general and administrative 2,114,372 1,090,282 2,763,978 3,219,072 (C) 9,187,704
------------ ----------- ----------- ----------- ------------
Total costs and expenses 3,495,434 2,178,969 7,774,639 3,219,072 16,668,114
Loss from operations (3,321,487) (1,955,546) 446,722 (3,219,072) (8,049,383)
Interest income (expense), net 178,586 (211,768) 9,179 -- (24,003)
------------ ----------- ----------- ----------- ------------
Earnings (loss) before taxes (3,142,901) (2,167,314) 455,901 (3,219,072) (8,073,386)
Provision for income taxes -- -- -- 300,000 (D) 300,000
------------ ------------ ----------- ------------ ------------
Net income (loss) $(3,142,901) $(2,167,314) $ 455,901 $(2,919,072) $(7,773,386)
============ ============ =========== ============ ============
Basic loss per share $ (0.30) $ (0.43)
Diluted loss per share (4) $ (0.30) $ (0.43)
Weighted average shares outstanding:
Basic 10,411,858 7,859,788 (E) 18,271,646
Diluted 10,411,858 7,859,788 (E) 18,271,646
</TABLE>
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
On October 24, 2000, the Company signed a definitive agreement to acquire
University.com, Inc. ("University.com") in a stock-for stock transaction.
Pursuant to the merger agreement, the Company will issue 5,609,788 shares of its
common stock to the shareholders of University.com in exchange for all the
issued and outstanding securities of University.com. The Company will also
assume certain warrants and options issued by University.com, which upon
assumption by the Company will require the Company to issue upon their exercise
up to 1,148,430 additional shares of common stock. The acquisition is subject to
certain closing conditions, including the approval by both the Company's and
University.com's stockholders, and the complete paydown of the existing line of
credit balance by the University.com stockholders, and is expected to close
prior to January 31, 2001.
On October 25, 2000, the Company signed a definitive agreement to acquire By
Referral Only, Inc. ("By Referral Only") in a stock and cash merger transaction.
Pursuant to the merger agreement, the Company will pay the shareholders of By
Referral Only $4,000,000 cash and issue to them 2,250,000 shares of the
Company's common stock in exchange for all the issued and outstanding securities
of By Referral Only. By Referral Only has no outstanding stock options or
warrants. The closing of the acquisition is subject to certain customary closing
conditions, including the Company's receipt of at least an additional $5,000,000
of capital at a purchase price of $3.00 per share. In the event the capital is
raised at a per share price of less than $3.00, the number of shares issuable to
shareholders of By Referral Only is subject to change. However, management
believes it will sell convertible preferred securities at a price greater than
$3.00. Accordingly, the pro forma combined condensed financials assume that only
2.25 million common shares will be issued to acquire By Referral Only. The
acquisition is expected to close prior to January 31, 2001.
The unaudited pro forma combined condensed financial information assumes the
acquisition by EntrePort of Unverisity.com and By Referral Only in transactions
to be accounted for under the purchase method. The unaudited pro forma combined
condensed balance sheet is based on the individual balance sheets of EntrePort
and University.com and By Referral Only and has been prepared to reflect the
acquisition by EntrePort of University.com and By Referral Only as if the
acquisition had occurred as of September 30, 2000. The unaudited pro forma
combined condensed statement of operations is based on the individual statements
of operations for University.com and By Referral Only and combines the results
of operations of EntrePort for the year ended December 31, 1999 and the nine
months ended September 30, 2000 with the results of operations of University.com
and By Referral Only as if the acquisition occurred as of January 1, 1999.
P-5
<PAGE>
The valuation of EntrePort common stock issued to University.com is based on its
weighted average closing prices three days prior and three days following the
announcement of the respective mergers. Since the acquisition of By Referral is
contingent on the sale of securities of at least $5 million, the common shares
to be issued to acquire By Referral Only will be valued when the contingency is
resolved. For purposes of the pro forma assumptions, the stock was valued at
$1.49 per share which approximates the current fair market value. Based on the
consideration issued in the transaction, and the related costs, the total
purchase price of University.com is approximately $16.5 million and By Referral
Only is approximately $7.8 million determined as follows (in thousands):
University.Com By Referral Only Total
-------------- ---------------- ------------
Common stock issued $16,074 $ 3,353 $ 19,427
Acquisition costs 450 450 900
Cash - 4,000 4,000
-------- -------- ---------
Total consideration $16,524 $ 7,803 $ 24,327
======== ======== =========
Of the total acquisition costs of $900,000, $418,000 was incurred through
September 30, 2000 and the remainder will be paid at the closing.
Although EntrePort has not conducted an independent valuation of the tangible
and intangible assets acquired in order to allocate the purchase price in
accordance with Accounting Principles Board Opinion No. 16, the purchase price
was allocated as follows based upon management's best estimate of the acquired
tangible and intangible assets (in thousands):
<TABLE>
<CAPTION>
University.Com By Referral Only Total
-------------- ---------------- ----------
<S> <C> <C> <C>
Current assets acquired $ 44 $ 862 $ 906
Property and equipment, and other assets 291 211 502
Goodwill 8,814 5,349 14,163
Intangible assets, primarily customer list 7,265 5,000 12,265
Liabilities assumed (251) (1,619) (1,870)
Deferred compensation 361 - 361
Deferred income taxes - (2,000) (2,000)
--------- --------- ---------
Total consideration $ 16,524 $ 7,803 $ 24,327
========= ========= =========
</TABLE>
The goodwill and acquired intangibles will be amortized over an estimated
weighted average life of five years. The amortization of the deferred
compensation will be amortized over the estimated average vesting period of 21
months.
P-6
<PAGE>
2. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(A) To eliminate the bank line of credit assumed by the University.com
shareholders, net of the cash balance at September 30, 2000. To also eliminate
the related unamortized debt issue costs.
(B) To record the acquisition of University.com and By Referral Only by
EntrePort and to eliminate the investment in University.com and By Referral Only
by EntrePort. See footnote number 1 above for a description of the transaction.
(C) To record amortization of goodwill, acquired intangibles and deferred
compensation. Also, to record the effect of contractually agreed-upon salary
reductions that are expected to have an ongoing impact as follows (in
thousands):
1999 2000
---- ----
Amortization of intangibles $ 5,286 $ 3,964
Amortization of deferred compensation 206 155
Salary reductions (1,200) (900)
--------- ---------
$ 4,292 $ 3,219
========= =========
(D) To record the reversal of deferred income tax liability related to the
amortization of the intangibles at By Referral Only ($400,000 in 1999 and
$300,000 in 2000).
(E) The proforma combined basic and diluted weighted average shares outstanding
is calculated as follows:
1999 2000
---- ----
EntrePort historical average shares 6,068,605 10,411,858
Shares issued to University.com 5,609,788 5,609,788
Shares issued to By Referral Only 2,250,000 2,250,000
---------- ----------
13,928,393 18,271,646
========== ==========
P-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Florida Statutes
Articles of Incorporation
Our Articles of Incorporation provides that the directors of the company shall
be protected from personal liability to the fullest extent permitted by law. Our
Articles of Incorporation also provide for the indemnification of our directors
and officers.
Bylaws
Our Bylaws further provide that our officers and directors shall not be liable
to us for any loss or damage suffered by us on account of any action taken by
him as an officer or director of the corporation if he acted in good faith and
in a manner reasonably believed to be in or not opposed to our best interests
and, with respect to a criminal matter, if he had no reasonable cause to believe
that his conduct was unlawful.
Indemnity Agreements
Our Articles of Incorporation provide that we may indemnify our directors and
officers to the fullest extent permitted by law and we have agreed to provide
such indemnification to our officers and directors, pursuant to written
indemnity agreements.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses incurred in
connection with the sale and distribution of the securities being registered.
All of the amounts shown are estimates except the Securities and Exchange
Commission registration fee.
Security and Exchange Commission registration fee......... $ 7,139.62
Printing and engraving expenses........................... $ 5,000.00
Legal fees and expenses................................... $ 10,000.00
Accounting fees and expenses.............................. $ 10,000.00
Miscellaneous expenses.................................... $ 2,500.00
Total............................................. $ 34,639.62
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years the Company sold unregistered shares of its
Common Stock in the following transactions:
(A) In October 1996, the Company issued 5,000,000 shares of Common
Stock to the founder of the Company, at a price of $.001 per share of which
4,410,000 were retired in March 1999. There was no underwriter involved in this
issuance. The issuance was conducted pursuant to Section 4(2) under the
Securities Act of 1933 ("1933 Act").
(B) In October 1996, the Company conducted a private placement of
25,000 shares of Common Stock to 25 parties, at a price of $.001 per share.
There was no underwriter involved in the placement. The placement was conducted
pursuant to Section 4(2) of the 1933 Act.
(C) In March 1999, the Company issued an aggregate of 2,800,000 shares
of Common Stock to three parties, including 2,533,334 shares to Mr. David J.
<PAGE>
D'Arcangelo, the Company's Chairman of the Board, and 133,333 shares of Common
Stock each to two consultants to the Company, in consideration of marketing and
business plans and consulting services rendered. The value of the consideration
received by the Company for the issuance of these shares was $0.0625 per share.
There was no underwriter involved in the issuances. The issuances were conducted
pursuant to Section 4(2) of the 1933 Act.
(D) In February 1999, the Company conducted a private placement of
1,000,000 shares of Common Stock to four individuals, at a price of $.001 per
share. There was no underwriter involved in the placement. The placement was
conducted pursuant to Rule 504 under the 1933 Act.
(E) During March through May 1999, the Company conducted a private
placement sale of convertible notes to six parties for the 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 6% to 10% 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, the holders of the notes
converted the entire principal amount into 267,500 shares of Common Stock. There
was no underwriter involved in the placement. The placement was conducted
pursuant to Section 4(2) of the 1933 Act.
(F) During the first and second quarters of 1999, the Company issued an
aggregate of 1,600,000 shares of Common Stock and options to purchase an
aggregate of 950,000 to five officers and directors of the Company. The value of
the consideration received by the Company for the issuance of these shares was
$0.0625 per share. There was no underwriter involved in the issuances. The
issuances were conducted pursuant to Section 4(2) of the 1933 Act.
(G) During the period August to January 2000, we conducted a private
placement of 1,524,430 shares of Common Stock to approximately 43 parties, at a
price of $2.00 per share. There was no underwriter involved in the placement.
The placement was conducted pursuant to Section 4(2) of the 1933 Act and Rule
506 thereunder.
(H) In November 1999, the Company issued 143,334 shares of Common Stock
to a consultant of the company in consideration of corporate finance, investor
communities and public relations consulting services. The value of the
consideration received by the Company for the issuance of these shares was $2.00
per share. There was no underwriter involved in the issuance. The issuance was
conducted pursuant to Section 4(2) of the 1933 Act.
(I) In February and March 2000, the Company conducted a private
placement of 3,525,000 shares of Common Stock to approximately 70 parties at a
price of $2.00 per share. Roth Capital Partners, Inc. acted as placement agent.
As part of its compensation for acting as placement agent, we granted to Roth
Capital Partners a common stock purchase warrant entitling the holder to
purchase 377,500 shares of common stock at an exercise price of $2.00 per share.
This offering was conducted pursuant to Section 4(2) of the 1933 Act and Rule
506 thereunder.
With respect to each of the foregoing offerings, prior to investing,
each subscriber was provided with or had access to all of the information
regarding the Company that would be included in a registration statement on Form
SB-2. With regards to the sales made in reliance on Section 4(2) of the 1933 Act
or Rule 506 thereunder, the Company had reasonable grounds to believe, prior to
accepting the subscription of each subscriber, based in part on the subscription
agreements or investment letters executed by the subscribers, that each of the
subscribers (i) was sophisticated enough to evaluate the merits of an investment
in the securities and did not need the benefits of registration under the 1933
Act, (ii) had a prior substantive relationship with the officers of the Company
or the selling broker dealer and (iii) was purchasing with investment intent and
not with a view to distribution. In addition, each subscriber referred to in
paragraphs A and C-I above was reasonably believed by the Company to be an
accredited investor within the meaning of Rule 501(a) of the 1933 Act.
<PAGE>
ITEM 27. EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (1)
3.2 Articles of Amendment to Articles of Incorporation dated March
24, 1999 (1)
3.3 Amended and Restated Bylaws (3)
4.1 Specimen of Common Stock Certificate (1)
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP (3)
10.1 EntrePort Corporation 1999 Stock Option Plan (1)
10.2 Securities Purchase Agreement with MetroSplash.com, Inc. (2)
10.3 Registration Rights Agreement (2)
10.4 Employment Agreement dated March 17, 1999 with David D'Arcangelo(3)
10.5 Employment Agreement dated March 19, 1999 with William Shue (3)
10.6 Private-Label Web Site agreement between Dearborn Financial
Publishing, Inc. and ISucceed.com, Inc. dated February 2, 2000 (4)
16.1 Letter of change in Accountants (2)
21.1 List of Subsidiaries (2)
23.1 Consent of Ernst & Young LLP (4)
23.2 Consent of Oppenheimer Wolff & Donnelly LLP (included as part of
Exhibit 5.1)
23.3 Consent of KPMG LLP (4)
23.4 Consent of Ernst & Young LLP (4)
27.1 Financial Data Schedule (2)
------------
(1) Filed as exhibit to Registrant's Form 10-SB Registration Statement
1999 (File No. 0-26941) and incorporated herein by reference.
(2) Filed as exhibit to Registrant's 1999 Annual Report on Form 10-KSB
(File No. 0-26941) and incorporated herein by reference.
(3) Filed as exhibit to Registrant's Registration Statement on Form SB-2
(File No 333-36620) and incorporated herein by reference.
(4) Filed electronically herewith.
ITEM 28. UNDERTAKING.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period which offers or sales are
being made, a post-effective amendment to this registration statements:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts of
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
<PAGE>
(b) Insofar as indemnification for the liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described herein, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange such indemnification is against public policy as expressed in the
opinion of the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by director, officers or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for the filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on December 22,
2000.
ENTREPORT CORPORATION
By: /s/ William A. Shue
--------------------------------------
William A. Shue
President, Chief Executive Officer
and Chief Financial Officer
By: /s/ Ronald D. Suokko
--------------------------------------
Ronald D. Suokko
Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David J. D'Arcangelo Chairman of the Board December 22, 2000
-------------------------
David J. D'Arcangelo
/s/ William A. Shue Director December 22, 2000
-------------------------
William A. Shue
/s/ Tony Acone Director December 22, 2000
-------------------------
Tony Acone
/s/ Scott Lucas Director December 22, 2000
-------------------------
Scott Lucas
