<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal quarter ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
---------------- ------------------
Commission File Number 0-27551
QORUS.COM, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 65-0358792
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11320 RANDOM HILLS ROAD
SUITE 590
FAIRFAX, VIRGINIA
(Address of principal executive offices)
(703) 279-7160
(Issuer's telephone number, including area code:)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 1, 2000: 16,087,405
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Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements required by this item are filed herewith:
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Balance Sheet (Unaudited), September 30, 2000 F-1
Statement of Operations (Unaudited) for the six months ended F-3
September 30, 2000
Statement of Cash Flows (Unaudited) for the nine months ended F-5
September 30, 2000
Notes to Financial Statements (Unaudited) F-7
</TABLE>
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Item 2. Management's Discussion and Analysis or Plan of Operation
The information contained in this report may contain certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
statements are intended to be covered by the safe harbors created by such
provisions. These statements include the plans and objectives of management for
future growth of Qorus.com, Inc. and subsidiaries ("Qorus" or "company")
including plans and objectives related to the consummation of future private and
public issuances of Qorus' equity and debt securities. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
Qorus. Although Qorus believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-QSB will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by Qorus or any other person that the objectives and plans of
Qorus will be achieved.
Qorus' revenue for the three months and nine months ended September 30,
2000 totaled $56,135 and $128,100, respectively, and was from one customer.
Total expenses for the three months and nine months ended September 30, 2000
were $2,309,567 and $5,473,293, respectively (excluding beneficial interest
expense in both periods). Our business is in the early development stage. We
have not yet achieved a revenue base sufficient to support our cost base.
Net cash outflow since inception of the company has been significant. We
have been dependent upon interim financing from related parties to fund
operations. At September 30, 2000 we had received and used $4,732,998 of interim
financing from five related parties who are significant stockholders in the
company. Subsequent to September 30th, we continued to receive interim financing
for working capital from related parties on an as needed basis.
To fund cash requirements in 2000, Qorus and its subsidiary, Aelix, Inc.,
issued promissory notes to related parties in the aggregate amount of
$4,732,998. The notes bear interest at 10% and are due on the earlier to occur
of (i) January 1, 2001 or (ii) the date of closing of the next equity or
quasi-equity financing by Qorus or any of its subsidiaries. Upon the closing of
any such transaction resulting in cash proceeds of $5,000,000 or more, the notes
will automatically convert into shares of the same series of securities that the
new investor(s) receive. If such offering does not occur by January 1, 2001,
then the notes will automatically convert into preferred stock of Aelix, Inc. (a
subsidiary of Qorus) at the exchange rate of 1 share of preferred stock for each
One Dollar ($1.00) of principal plus accrued and unpaid interest on the note on
the date of the conversion. As an incentive to provide the interim financing,
Qorus sold 4,732,998 shares of common stock to the note holders at a price of
$0.01 per share.
Qorus will have a high level of operating expenses in the foreseeable
future while we continue to add major functions and capabilities to our products
and spend significantly
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on selling and marketing our products. As a result, we expect that losses will
continue for the foreseeable future until the revenue base is sufficient to
support the company.
PLAN OF OPERATION FOR THE NEXT 12 MONTHS
Qorus intends to raise additional funds for operations through one or more
private placement offerings of between $10 million and $15 million. We are
currently soliciting potential investors regarding such an offering. Qorus
believes, based on current proposed plans and assumptions relating to its
operations, that the private placement(s), together with anticipated revenues
from operations, will be sufficient to fund operations and working capital
requirements over the next 12 months.
In the event that Qorus plans or assumptions relating to its operations
change or prove to be inaccurate, or if the net proceeds of future private
placements together with revenues generated from operations prove to be
insufficient (due to, among other things, unanticipated expenses, increased
competition, unfavorable general economic conditions, inability to successfully
market Qorus' services, or other unforeseen circumstances), Qorus could be
required to seek other alternatives. There can be no assurance that additional
financing from any source will be available to Qorus when needed on commercially
reasonable terms.
The management and board of directors of Qorus have made the decision to
exit the unified messaging services business. The revenue base of this line of
business has not grown as expected. On September 27, 2000, the company gave
Tornado Development, Inc. notice of our intention to terminate both our Dealer
Agreement and Software License with Tornado. The effective date of this
termination is November 30, 2000. We are currently negotiating with Tornado
regarding the transfer of existing customers and assets associated with the
unified messaging business.
The company is now focused on providing "Tier Zero" Customer Relationship
Management (CRM) services providing intelligent electronic message broadcasting
and delivery service. We offer the ability to send one-to-many communications
via a variety of mediums (email, fax, pager, hand-held device, etc).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Gross revenues for the three months ended September 30, 2000 were $56,135
compared to $62,000 for the comparable 1999 period. The three months of 2000
included $4,500 of billings for development work and $51,635 for transaction
services. All of the sales in the comparable period of 1999 were for development
services for the same customer.
Cost of revenues for the three months ended September 30, 2000 was $288,329
compared to a credit of $57,834 for the comparable period in 1999. The cost of
staff and
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equipment necessary to operate our transaction services business for only one
customer exceeded the revenue because certain minimum costs for both staff and
equipment are required to operate the system. Our operational capacity is
underutilized. The credit cost of revenues for the comparable period of 1999
resulted from the reclassification of costs from cost of revenues to prepaid
expense.
Gross loss for the three months ended September 30, 2000 was $232,193
compared to a gross profit of $119,834 for the comparable period in 1999. The
cost of staff and equipment necessary to operate our transaction services
business for only one customer exceeded the revenue because certain minimum
costs for both staff and equipment are required to operate the system. Our
operational capacity is underutilized. In the comparable period of 1999 certain
expenses were reclassified from cost of revenues to prepaid expense.
Selling, General and Administrative expenses for the three months ended
September 30, 2000 were $1,938,145 compared to $759,179 for the comparable
period in 1999. The majority of these expenses were employee-related, sales and
marketing and professional fees in both 2000 and 1999. In addition, there was a
$280,000 asset impairment write-down in 1999 related to an acquisition of
assets. Employee related expenses increased from $398,500 in 1999 to $855,100 in
2000 as the number of employees grew. Recruiting and new-hire expenses increased
from $67,000 to $85,600 for the three months ended September 30, 1999 and 2000,
respectively. Sales and marketing expenses increased from $81,400 in 1999 to
$434,500 in 2000 for this three-month period. Depreciation and amortization
expenses for the three months ended September 30, 1999 and 2000 increased from
$4,900 to $60,700 , respectively. The increase in depreciation and amortization
was related to the purchase and use of equipment and software once the company
began service to customers.
Interest expense increased from $9,800 for the three months ended September
30, 1999 to $83,100 for the comparable period in 2000. This increase was
attributable to notes payable to related parties and interest due on past-due
payables to vendors. In the three-month period ended September 30, 2000 there
was a beneficial interest expense of $2,188,800 for the difference between the
purchase price of 3,232,998 shares of stock sold to three related parties and
the market price of the stock on the day of sale.
As a result of the foregoing, net losses for the three months ended
September 30, 2000 and 1999 were $4,442,100 and $577,300, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE PERIOD MARCH 10, 1999 TO
SEPTEMBER 30, 1999
Gross revenues for the nine months ended September 30, 2000 were $128,100
compared to $62,000 for the comparable 1999 period. The nine months of 2000
included $15,400 for billings for development work and $112,700 for billings for
transaction services. All of the revenues in the comparable period of 1999 arose
from development services. Qorus began its business in March of 1999 and had no
sales until July of 1999.
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Cost of revenues for the nine months ended September 30, 2000 was $745,500
compared to $437,900 for the comparable period in 1999. The cost of staff and
equipment necessary to operate our transaction services business for only one
customer exceeded the revenue because certain minimum costs for both staff and
equipment are required to operate the system. In the 1999 period we were testing
and not fully operational, so costs were lower than normal. Our operational
capacity is underutilized.
Gross loss for the nine months ended September 30, 2000 was $617,400
compared to $375,900 for the comparable period in 1999. The cost of staff and
equipment necessary to operate our transaction services business exceeded the
revenue because certain minimum costs for both staff and equipment are required
to operate the system.
Selling, General and Administrative expenses for the nine months ended
September 30, 2000 were $4,596,200 compared to $1,545,800 for the comparable
period in 1999. The majority of these expenses were employee-related, sales and
marketing and professional fees for both 2000 and 1999. In addition, there was a
$280,000 asset impairment write-down in 1999 related to an acquisition of
assets. Employee related expenses increased from $608,300 in 1999 to $2,313,400
in 2000 as the number of employees grew. Recruiting and new-hire expenses
increased from $155,500 to $277,000 for the nine months ended September 30, 1999
and 2000, respectively. Sales and marketing expenses increased from $228,300 in
1999 to $1,004,800 in 2000 for this nine-month period. Professional fees
including legal and accounting services totaled $342,200 and $768,200 for the
nine months ended September 30, 1999 and 2000, respectively. Management expects
to continue incurring significant professional fees for additional capital
requirements, marketing and legal and accounting services. Depreciation and
amortization expenses for the nine months ended September 30, 1999 and 2000 were
$4,900 and $161,600, respectively. The increase in depreciation and amortization
related to the purchase and use of equipment and software once the company began
service to customers.
Interest expense increased from $27,700 for the period ended September 30,
1999 to $132,300 for the comparable period in 2000. This increase was
attributable to notes payable to related parties and interest due on past-due
payables to vendors. In the nine month period ended September 30, 2000, there
was a beneficial interest expense of $5,185,800 for the difference between the
purchase price of 4,732,998 shares of stock sold to four related parties and the
market price of the stock on the day of sale.
As a result of the foregoing, net losses for the nine months ended
September 30, 2000 and 1999 were $10,530,800 and $1,856,100 respectively.
LIQUIDITY AND CAPITAL RESOURCES
Qorus capital requirements have been and will continue to be significant
and its cash requirements have been exceeding its cash flow from operations. At
September 30, 2000 Qorus had negative working capital of approximately
$5,246,800 and unrestricted cash and cash equivalents of $368,100. Qorus has no
established credit line. Qorus continues to satisfy its working capital
requirements through limited cash flow generated from
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operations, the issuance of equity and debt securities, and loans from
stockholders and related parties.
Net cash used in operating activities for the nine months ended September
30, 2000 was $4,971,400 and $730,600 for the comparable period in 1999,
primarily as a result of significant operating losses in 2000 and start-up
expense in 1999.
Net cash used by investing activities was $293,000 for the nine months
ended September 30, 2000 and $1,686,000 for the comparable period in 1999. In
1999 a $1,018,752 investment was made in Tornado Development preferred stock
when Qorus purchased software from Tornado for its unified messaging business.
In the start-up period in 1999 more cash was used for the purchase of furniture
and equipment and for deposits for building and equipment leases than in the
corresponding period in 2000.
Financing activities provided $4,748,000 in cash for the nine months ended
September 30, 2000 and $2,384,300 for the comparable period in 1999. The
increased borrowings were used to cover operating and start-up losses. All
borrowings were from related parties.
Qorus has operating leases payable to a third-party leasing company. One
lease is a 36-month operating lease that began in July 1999, ends in June 2002
and requires a monthly payment of $6,842 plus appropriate taxes. The other two
leases are simultaneous 18-month operating leases that began September 1999,
end February 2001 and require a total monthly payment of $21,806 plus
appropriate taxes.
Qorus also has two concurrent property leases for its operations offices in
Los Angeles, California. These leases expire June 15, 2002. Monthly rentals are
$3,826 and $1,924. In addition, Qorus entered into a five-year lease for
headquarters office space in Fairfax, Virginia. This lease expires May 31, 2005.
Monthly rental is approximately $10,500. Future minimum payments under the
leases are as follows:
<TABLE>
<CAPTION>
Calendar Year Ended
<S> <C>
2000....................................... 269,000
2001....................................... 324,000
2002....................................... 208,000
2003....................................... 135,000
2004....................................... 139,000
2005....................................... 59,000
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Total................................. $1,134,000
</TABLE>
GOING CONCERN
Qorus has had minimal revenues and incurred losses from operations since
inception. Qorus' independent auditors included an explanatory paragraph in
their report for the period ended December 31, 1999, which indicated a
substantial uncertainty as to the ability of Qorus to continue as a going
concern. The survival of Qorus is dependent upon obtaining additional interim
financing from related parties until more permanent equity or quasi-equity
financing can be obtained.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Acquisition Agreement between Golf Ball World, Inc., a Florida
corporation, and the stockholders of Qorus.com. Inc., a Delaware
corporation (incorporated by reference to Exhibit 6.2 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
2.2 Amendment No. 1 to Acquisition Agreement between Golf Ball World,
Inc., a Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation (incorporated by reference to Exhibit
6.4 of the Registration Statement on Form 10-SB, as amended, filed
by Qorus.com, Inc.)
2.3 Amendment No. 2 to Acquisition Agreement between Golf Ball World,
Inc., a Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation (incorporated by reference to Exhibit
6.9 of the Registration Statement on Form 10-SB, as amended, filed
by Qorus.com, Inc.)
3.1 Articles of Incorporation (incorporated by reference to Exhibit No.
2.1 of the Registration Statement on Form 10-SB, as amended, filed
by Qorus.com, Inc.)
3.2 Bylaws (incorporated by reference to Exhibit No. 2.2 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
4.1 Form of Common Stock Certificate of Qorus.com, Inc. (incorporated
by reference to Exhibit No. 3.1 of the Registration Statement on
Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.1 1999 Stock Option Plan of Qorus.com, Inc. (incorporated by
reference to Exhibit No. 6.1 of the Registration Statement on Form
10-SB, as amended, filed by Qorus.com, Inc.)
10.2 Acquisition Agreement between Golf Ball World, Inc., a Florida
corporation, and the stockholders of Qorus.com, Inc., a Delaware
corporation (incorporated by reference to Exhibit No. 6.2 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
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10.3 Employment Agreement dated May 24, 1999, between Qorus.com, Inc., a
Delaware corporation and Michael Sohn (incorporated by reference to
Exhibit No. 6.3 of the Registration Statement on Form 10-SB, as
amended, filed by Qorus.com, Inc.)
10.4 Amendment No.1 to Acquisition Agreement between Golf Ball World,
Inc., a Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation (incorporated by reference to Exhibit
No. 6.4 of the Registration Statement on Form 10-SB, as amended,
filed by Qorus.com, Inc.)
10.5 Software License Agreement between Tornado Development, Inc., a
California corporation, and Qorus.com, Inc., a Delaware corporation
(incorporated by reference to Exhibit No. 6.5 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.6 Tornado Development, Inc. Class A Common Stock Purchase Warrant
(incorporated by reference to Exhibit No. 6.6 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.7 Registration Rights Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Tornado Development, Inc., a Delaware
corporation, dated April 15, 1999 (incorporated by reference to
Exhibit No. 6.7 of the Registration Statement on Form 10-SB, as
amended, filed by Qorus.com, Inc.)
10.8 Authorized Reseller Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Alpha Telecom (UK) Ltd., a Limited
Company, dated June 10, 1999 (incorporated by reference to Exhibit
No. 6.8 of the Registration Statement on Form 10-SB, as amended,
filed by Qorus.com, Inc.)
10.9 Authorized Reseller Agreement by and between Qorus.com, Inc., a
Delaware corporation, and C2C Telecom, Inc., a Delaware
corporation, dated September 21, 1999 (incorporated by reference to
Exhibit No. 6.9 of the Registration Statement on Form 10-SB, as
amended, filed by Qorus.com, Inc.)
10.10 Authorized Reseller Agreement by and between Qorus.com, Inc., a
Delaware corporation, and CyberGate, Inc. Dated August 31, 1999
(incorporated by reference to Exhibit No. 6.10 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
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10.11 Master Agreement by and between Qorus.com, Inc., a Delaware
corporation, and Moore Business Communication Services, a division
of Moore North America, Inc., dated September 10, 1999
(incorporated by reference to Exhibit No. 6.11 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.12 Statement of Work #NWA-1 issued under Master Agreement by and
between Qorus.com, Inc., a Delaware corporation, and Moore Business
Communications Services, a division of Moore North America, Inc.
(incorporated by reference to Exhibit No. 6.12 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.13 Bill of Sale, Assignment and Assumption Agreement by and between
Qorus.com, Inc., a Delaware corporation, and NetDox, Inc., a
Delaware corporation, dated July 15, 1999 (incorporated by
reference to Exhibit No. 6.13 of the Registration Statement on Form
10-SB, as amended, filed by Qorus.com, Inc.)
10.14 Rescission Agreement by and between Qorus.com, Inc., a Delaware
corporation, and NetDox, Inc., a Delaware corporation, dated
December 31, 1999 (incorporated by reference to Exhibit No. 6.14 of
the Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.15 Commission Agreement by and between Qorus.com, Inc., a Delaware
corporation, and NetDox, Inc., a Delaware corporation, dated
December 31, 1999 (incorporated by reference to Exhibit No. 6.15 of
the Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.16 Consulting Agreement by and between Qorus.com, Inc., a Delaware
corporation, and Thurston Group, Inc., a Delaware corporation,
dated March 1, 1999 (incorporated by reference to Exhibit No. 6.16
of the Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.17 Lease and Service Agreement by and between Southern European
Communications Corp., a Delaware corporation, and VANTAS/Fair Oaks
dated December 23, 1999 (incorporated by reference to Exhibit No.
6.17 of the Registration Statement on Form 10-SB, as amended, filed
by Qorus.com, Inc.)
10.18 Internet Data Center Services Agreement by and between Qorus.com,
Inc., a Delaware corporation, and Exodus Communications, Inc.
(incorporated by reference to Exhibit No. 6.18 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
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10.19 Amendment No. 2 to Acquisition Agreement between Golf Ball World,
Inc., a Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation (incorporated by reference to Exhibit
No. 6.19 of the Registration Statement on Form 10-SB, as amended,
filed by Qorus.com, Inc.)
10.20 Settlement Agreement and Release by and between Qorus.com, Inc. and
Tornado Development, Inc. Dated October 28, 1999 (incorporated by
reference to Exhibit No. 6.20 of the Registration Statement on Form
10-SB, as amended, filed by Qorus.com, Inc.)
10.21 Amendment No. 1 to Software License Agreement dated October 28,
1999 by and between Qorus.com, Inc. and Tornado Development, Inc.
(incorporated by reference to Exhibit No. 6.21 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.22 Employment Agreement, dated as of March 1, 2000, by and between
Qorus.com, Inc., a Florida corporation, and James W. Blaisdell
(incorporated by reference to Exhibit No. 6.22 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.23 Promissory Note, dated as of November 1, 1999, payable to Thomson
Kernaghan & Co., Ltd. in the original principal amount of
$100,000.00 (incorporated by reference to Exhibit No. 6.23 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.24 Subscription Agreement, dated as of November 1, 1999, by and
between Qorus.com, Inc., a Florida corporation, and Thomson
Kernaghan & Co., Ltd. (incorporated by reference to Exhibit No.
6.24 of the Registration Statement on Form 10-SB, as amended, filed
by Qorus.com, Inc.)
10.25 Agreement for Professional Services, dated as of
__________________, 2000, by and between Qorus.com, Inc., a Florida
corporation, and Leighton W. Smith (incorporated by reference to
Exhibit No. 6.25 of the Registration Statement on Form 10-SB, as
amended, filed by Qorus.com, Inc.)
10.26 Amendment to Agreement for Professional Services, dated as of
________________, 2000, by and between Qorus.com, Inc., a Florida
corporation, and Leighton W. Smith (incorporated by reference to
Exhibit No. 6.26 of the Registration Statement on Form 10-SB, as
amended, filed by Qorus.com, Inc.)
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10.27 Agreement for Professional Services, dated as of March 2, 2000, by
and between Qorus.com, Inc., a Florida corporation, and Michael J.
Labedz (incorporated by reference to Exhibit No. 6.27 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.28 Agreement for Professional Services, dated as of March 2, 2000, by
and between Qorus.com, Inc., a Florida corporation, and Willard C.
McNitt, Jr. (incorporated by reference to Exhibit No. 6.28 of the
Registration Statement on Form 10-SB, as amended, filed by
Qorus.com, Inc.)
10.29 Form of Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit No. 6.29 of the Registration Statement on Form
10-SB, as amended, filed by Qorus.com, Inc.)
10.30 Warrant, dated March 27, 2000, issued to First Portland Corporation
(incorporated by reference to Exhibit No. 6.30 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.31 Promissory Note, dated as of March 27, 2000, payable to Thurston
Interests, L.L.C. in the original principal amount of $750,000
(incorporated by reference to Exhibit No. 6.31 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.32 Promissory Note, dated as of March 27, 2000, payable to Apex
Investment Fund III in the original principal amount of $703,425
(incorporated by reference to Exhibit No. 6.32 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.33 Promissory Note, dated as of March 27, 2000, payable to Apex
Strategic Investors in the original principal amount of $46,575
(incorporated by reference to Exhibit No. 6.33 of the Registration
Statement on Form 10-SB, as amended, filed by Qorus.com, Inc.)
10.34* Deed of Lease by and between Fair Grove Properties, L.L.C. and
Qorus.com, Inc., a Florida corporation, dated June 5, 2000
10.35* Sales Representation Agreement by and between Qorus.com, Inc., a
Florida corporation d/b/a Aelix, and SystemsFusion US, Inc., a
Delaware corporation, dated July 7, 2000
27* Financial Data Schedule
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* Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QORUS.COM, INC.
Dated November 14, 2000 By: /s/ James W. Blaisdell
------------------------------------------
James W. Blaisdell
Executive Chairman and Chief Executive Officer
Dated November 14, 2000 By: /s/ Thomas C. Ratchford
------------------------------------------
Thomas C. Ratchford
Chief Financial Officer
<PAGE> 14
QORUS.COM, INC.
BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 368,102
Accounts receivable 99,024
Prepaid expenses and other current assets 5,159
-----------
Total current assets 472,285
-----------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 29,534
Office equipment 85,125
Production equipment 138,852
Leasehold improvements 46,491
-----------
Total property and equipment 300,002
Less accumulated depreciation (56,778)
-----------
Property and equipment, net 243,224
-----------
INVESTMENT 518,752
-----------
OTHER ASSETS:
Software licenses:
Related party, net of accumulated
amortization of $226,550 9,850
Other, net of accumulated
amortization of $52,480 26,240
Other assets 175,938
-----------
Total other assets 212,028
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TOTAL ASSETS $ 1,446,289
===========
(Continued)
</TABLE>
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QORUS.COM, INC.
BALANCE SHEET - CONTINUED
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses and other current liabilities $ 886,118
Notes payable to related parties 4,832,998
------------
Total current liabilities 5,719,116
------------
LONG-TERM LIABILITIES 0
STOCKHOLDERS' DEFICIT;
Preferred stock, par value $.01; 5,000,000 shares
authorized and no shares issued
Common stock, par value $.001; 50,000,000 shares
authorized and 16,087,405 shares issued and
outstanding 16,088
Additional paid-in capital 9,384,387
Accumulated deficit (13,673,302)
------------
Total stockholders' deficit (4,272,827)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,446,289
============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 16
QORUS.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES $ 56,136 $ 62,000
COST OF REVENUES 288,329 (57,834)
------------ ------------
GROSS LOSS (232,193) 119,834
OPERATING EXPENSES:
Selling and marketing 617,517 134,595
General and administrative 1,320,628 624,584
------------ ------------
Total operating expenses 1,938,145 759,179
------------ ------------
LOSS FROM OPERATIONS (2,170,338) (639,345)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 85 71,792
Interest expense (83,093) (9,794)
Beneficial interest expense (2,188,800) 0
Gain on sale of assets 0 0
------------ ------------
Other Income/(expense), net (2,271,808) 61,998
------------ ------------
Loss before income taxes (4,442,146) (577,347)
Income taxes 0 0
------------ ------------
NET LOSS $ (4,442,146) $ (577,347)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.34) $ (.05)
============ ============
Weighted average shares of
common stock outstanding 12,854,407 11,359,136
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 17
QORUS.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS FOR THE PERIOD
ENDED MARCH 10, 1999 TO
SEPTEMBER 30 SEPTEMBER 30
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES $ 128,100 $ 62,000
COST OF REVENUES 745,548 437,886
------------ ------------
GROSS LOSS (617,448) (375,886)
------------ ------------
OPERATING EXPENSES:
Selling and marketing 1,004,831 228,351
General and administrative 3,590,571 1,317,498
------------ ------------
Total operating expenses 4,595,402 1,545,849
------------ ------------
LOSS FROM OPERATIONS (5,212,850) (1,921,735)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 983 93,295
Interest expense (132,343) (27,688)
Beneficial interest expense (5,185,830) 0
Gain on sale of assets 0 0
------------ ------------
Other Income/(expense), net (5,317,190) 65,607
------------ ------------
Loss before income taxes (10,530,040) (1,856,128)
Income taxes 800 0
------------ ------------
NET LOSS $(10,530,840) $ (1,856,128)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.86) $ (.20)
============ ============
Weighted average shares of
common stock outstanding 12,187,630 9,492,226
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 18
QORUS.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS FOR THE PERIOD
ENDED MARCH 10, 1999 TO
SEPTEMBER 30 SEPTEMBER 30
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(10,530,840) $ (1,856,128)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation 43,046 4,898
Amortization 118,170 0
Loss on sale of property/Impairment 712 280,749
Beneficial interest expense 5,185,830 0
Changes in operating assets & liabilities:
Accounts receivable 16,751 (62,000)
Prepaid expenses and other assets 126,743 (104,204)
Accrued expenses/accounts payable 68,175 1,006,077
------------ ------------
Net cash used by operating activities (4,971,413) (730,608)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (187,237) (934,113)
Sale of property 5,102 350,000
Deposits (110,851) (83,154)
Investment 0 (1,018,752)
------------ ------------
Net cash used by investing activities (292,986) (1,686,019)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable borrowings 4,732,998 519,776
Related party note receivable issued 0 (2,001,266)
Retained earnings from merger 5/19/99 0 (208,620)
Proceeds from issuance of common stock, net 15,000 4,074,405
------------ ------------
Net cash provided by financing activities 4,747,998 2,384,295
------------ ------------
NET INCR/(DECR) IN CASH AND EQUIVALENTS (516,401) 32,332
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 884,503 0
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 368,102 $ 32,332
============ ============
</TABLE>
F-5
<PAGE> 19
QORUS.COM, INC.
STATEMENT OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 21
Income taxes $800
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 20
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance
with the requirements for Form 10-QSB and Article 10 of the Regulation S-X
and Regulation S-B. Accordingly, they do not include all the disclosures
normally required by generally accepted accounting principles. Reference
should be made to the Qorus.com, Inc. (the "Company") Form 10-SB and Form
10-KSB for the year ended December 31, 1999, for additional disclosures
including a summary of the Company's accounting policies, which have not
significantly changed.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature that, in the opinion of management, are necessary
to fairly present the financial position, results of operations, and cash
flows on a consistent basis. Operating results for the nine months ended
September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LICENSES - The Company has an agreement with a related party (Tornado
Development, Inc.) that licenses certain technology. The term of the
license is for three years (expiring May 2002). The agreement provides for
a prepaid license fee totaling $150,000 for the minimum number of
subscribers to the Company's product in the first year. Additional fees are
due for subscribers over the minimum number in the first year. License fees
for the remaining term are based on a sliding scale for the number of
subscribers. The agreement also provides for a royalty fee on certain
components utilized by the Company to service the subscribers. The minimum
royalty for the first year is $86,400 with additional royalties due based
on a sliding scale over the term of the agreement. The License and Royalty
expenses totaled $29,550 and $0 for the three months ended September 30,
2000 and 1999 respectively; and $88,650 and $0 for the nine months ended
September 30, 2000 and 1999 respectively. (See note 8.)
F-7
<PAGE> 21
The Company also has license agreements with third parties for the software
programming and internet support. The aggregate license fee for these
agreements totaled $78,720. The agreements provide for varying terms from 2
years to perpetual. License expense to third parties for the three months
ended September 30, 2000 and 1999 totaled $9,840 and $0 respectively. For
the nine months ended September 30, 2000 and 1999 license expense to third
parties totaled $29,520 and $0 respectively.
SIGNIFICANT CUSTOMER - One customer accounted for all revenues during the
period and most of the accounts receivable at September 30, 2000.
PERVASIVENESS 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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
GOING CONCERN - The Company has not received significant revenues and has
incurred significant expenses in developing its product and strategic
relationships. The financial statements have been prepared assuming the
Company will continue to operate as a going concern that contemplates the
realization of assets and the settlement of liabilities in the normal
course of business. No adjustment has been made to the recorded amount of
assets or the recorded amount or classification of liabilities which would
be required if the Company were unable to continue its operations. As
discussed in Note 7, management has developed an operating plan that they
believe will generate sufficient cash to meet its obligations in the normal
course of business.
3. NOTES PAYABLE TO RELATED PARTY
The Company has a note payable of $100,000 at September 30, 2000 due to a
related party, which accrues interest at 10% per annum and is due on
demand. In addition, the Company has committed to sell 20,000 shares of
common stock at par value to the noteholder.
The Company and its subsidiary, Aelix, Inc., have issued convertible notes
payable in an aggregate amount of $4,732,998 at September 30, 2000 as a
result of a financing agreement with related parties. The notes bear
interest at 10% and are due on the earlier to occur of (i) January 1, 2001
or (ii) the date of closing of the next equity or quasi-equity financing by
Qorus or any of its subsidiaries. Upon the closing of any such transaction
resulting in cash proceeds of $5,000,000 or more, the notes will
automatically convert into shares of the same series of securities that the
new investor(s) receive. If such offering does not occur by January 1,
2001, then the notes will automatically convert into preferred stock of
Aelix, Inc. (a subsidiary of Qorus) at the exchange rate of 1 share of
preferred stock for each One Dollar ($1.00) of principal plus accrued and
unpaid interest on the note on the date of the conversion. As an incentive
to provide the interim financing, Qorus sold 4,732,998 shares of common
stock to the note holders at a price of $0.01 per share.
F-8
<PAGE> 22
4. BENEFICIAL INTEREST EXPENSE
On May 31, 2000 the Board of Directors authorized the issuance of 1,500,000
shares of its common stock for $.01 per share as additional consideration
for the financing provided by related parties. On September 30, 2000 the
Board of Directors authorized the issuance of 3,232,998 shares of its
common stock for $.01 per share as additional compensation for the
financing provided by related parties. The Company recorded beneficial
interest expense of $5,185,830 for the issuance of the common stock. The
amount was calculated based on the difference between the closing market
price and the sale price of the common stock.
5. INCOME TAXES
The company has generated substantial tax loss carry-forwards that create a
significant deferred tax asset at September 30, 2000. The company has not
assigned any value to such asset due to the uncertainty of realization of
the value. In assessing the realizability 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. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment.
At September 30, 2000, the Company had net operating loss carry-forwards
for Federal tax purposes of approximately $7 million, which is available to
offset future taxable income, if any, through 2019.
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with NetDox,Inc. (a company with common
ownership) under which the company has agreed to pay NetDox a commission of
20% of all gross revenues (excluding development fees or other
non-recurring revenues) received under the Company's contract with Moore
Business Communications Services. As of September 30, 2000, no commissions
have been paid to NetDox, but $22,500 has been accrued.
7. MANAGEMENT PLANS
During the nine-month period ended September 30, 2000, the Company received
loans from related parties totaling $4,732,998. At September 30, 2000 the
Company has used substantially all of these funds. Management believes that
available cash resources and increased sales will be insufficient to meet
its cash flow requirements through December 2000. Management has developed
alternate plans that include, but are not limited to, raising additional
debt and/or equity financing and identifying companies with additional
complementary services for merger or acquisition with the Company.
F-9
<PAGE> 23
8. SUBSEQUENT EVENTS
On September 27, 2000 the company notified Tornado Development, Inc of its
intention to terminate both our Dealer Agreement and Software License as of
November 30, 2000. The Company's election to terminate reflects
management's strategic direction to focus on offering customer relationship
management (CRM) services rather than unified messaging services. The
Company is currently negotiating with Tornado regarding the transfer of
existing customers and assets associated with unified messaging services.
The Company does not expect to incur any substantial expenses as a result
of this termination.
F-10
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.34 Deed of Lease by and between Fair Grove Properties, L.L.C. and
Qorus.com, Inc., a Florida corporation, dated June 5, 2000
10.35 Sales Representation Agreement by and between Qorus.com, Inc., a
Florida corporation d/b/a Aelix, and SystemsFusion US, Inc., a
Delaware corporation, dated July 7, 2000
27 Financial Data Schedule
</TABLE>
