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 QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ______________
Commission File No: 0-30100
CORPAS INVESTMENTS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2890565
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1640 5TH STREET
SUITE 218
SANTA MONICA, CALIFORNIA 90401
(310) 458-7870
- - --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF AUGUST 10, 2000
----- ---------------------------------
Common Stock
Par value $.001 per share 14,478,579
Transitional Small Business Disclosure Format Yes [ ] No [X]
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TABLE OF CONTENTS
PART I. Financial Information
PAGE
----
ITEM 1. Financial Statements
Condensed Balance Sheets at June 30, 2000 (Unaudited) and
December 31, 1999................................................... 3
Condensed Statements of Operations for the Three Months and
Six Months ended June 30, 2000 and 1999 (Unaudited)................. 4
Condensed Statements of Cash Flows for the Six Months
ended June 30, 2000 (Unaudited)..................................... 5
Notes to Financial Statements................................................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9
PART II. Other Information
ITEM 1. Legal Proceedings............................................................ 13
ITEM 2. Changes in Securities and Use of Proceeds.................................... 13
ITEM 3. Defaults upon Senior Securities.............................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders.......................... 14
ITEM 5. Other Information............................................................ 14
ITEM 6. Exhibits and Reports on Form 8-K............................................. 15
FORWARD LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Discussions containing such
forward-looking statements may be found in Management's Discussion and Analysis
of Financial Condition and Results of Operations under the captions "Fiscal
Quarter Ended June 30, 2000" and "Liquidity and Capital Resources," below. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control, and actual results for future periods
could differ materially from those discussed in forward-looking statements
depending on a variety of important factors, among which are the growth of the
market for on-line entertainment; the ability of the Company to acquire by
purchase or license sufficient content; the Company's ability to properly manage
growth and successfully integrate acquired companies and operations; the ability
of the Company to respond to technological changes in the Internet industry; the
Company's ability to successfully compete in a very competitive environment, the
Company's ability to accurately forecast capital expenditures, and the ability
of the Company to obtain new sources of financing. A summary of these and other
risks and uncertainties can be found in the Company's filings with the
Securities and Exchange Commission from time to time, including the Company's
annual report on Form 10-KSB for the fiscal year ended December 31, 1999 (File
No. 0-30100).
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORPAS INVESTMENTS, INC.
A DEVELOPMENT STAGE ENTERPRISE
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
(NOTE 1) (NOTE 1)
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 142,782 $ 936,721
Accounts receivable ................................. 5,402 --
Employee advances ................................... 8,628 15,500
Prepaid expenses .................................... 83,045 --
------------ ------------
Total current assets ............................ 239,857 952,221
------------ ------------
Property and equipment, net .............................. 204,016 99,612
Other assets:
Goodwill, net ....................................... 7,777,237 --
Other intangible assets, net ........................ 235,162 58,383
Deferred interest ................................... 1,083,368 --
Deposits ............................................ 36,419 --
------------ ------------
Total other assets .............................. 9,132,186 58,383
------------ ------------
$ 9,576,059 $ 1,110,216
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 406,589 $ 126,880
Accrued liabilities ................................. 209,703 53,416
Notes payable ....................................... 811,000 --
Deposits on unissued stock .......................... -- 1,738,838
------------ ------------
Total current liabilities ...................... 1,427,292 1,919,134
------------ ------------
Stockholders' equity:
Common stock, par value $.001, 50,000,000,
shares authorized 14,479,000 and 9,600,000
shares issued and outstanding ..................... 14,479 9,600
Additional paid-in capital .......................... 17,495,303 --
Deficit accumulated during the development stage .... (9,355,415) (812,918)
Subscriptions receivable ............................ (5,600) (5,600)
------------ ------------
Total stockholders' equity ...................... 8,148,767 (808,918)
------------ ------------
$ 9,576,059 $ 1,110,216
============ ============
Unaudited -- See accompanying notes to condensed financial statements.
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CORPAS INVESTMENTS, INC.
A DEVELOPMENT STAGE ENTERPRISE
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 22, 1999
JUNE 30, JUNE 30, (DATE OF
----------------------------- ---------------------------- INCEPTION) TO
2000 1999 2000 1999 JUNE 30, 2000
------------ ----------- ------------ ----------- -------------
REVENUES: .............................. $ 704,917 $ -- $ 712,917 $ -- $ 712,917
------------ ----------- ------------ ----------- ------------
COSTS AND EXPENSES:
Cost of sales ..................... 1,173,518 -- 1,173,518 -- 1,173,518
Selling, general & administrative.. 5,113,107 -- 7,636,335 -- 8,446,570
------------ ----------- ------------ ----------- ------------
6,286,625 -- 8,809,853 -- 9,620,088
------------ ----------- ------------ ----------- ------------
OPERATING LOSS ......................... (5,581,708) -- (8,096,936) -- (8,907,171)
------------ ----------- ------------ ----------- ------------
OTHER INCOME (EXPENSE)
Interest income .................. 2,313 -- 4,445 -- 5,762
Interest expense ................. (374,823) -- (450,006) -- (450,006)
------------ ----------- ------------ ----------- ------------
NET LOSS ............................... $ (5,954,218) $ -- $ (8,542,497) $ -- $ (9,351,415)
============ =========== ============ =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING .......... 16,609,846 5,600,000 13,744,452 5,600,000
NET LOSS PER SHARE ..................... $ (.36) $ -- $ (.62) $ --
=========== ============ =========== ============
Unaudited -- See accompanying notes to condensed financial statements.
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CORPAS INVESTMENTS, INC.
A DEVELOPMENT STAGE ENTERPRISE
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 22, 1999
JUNE 30, (DATE OF
-------------------------- INCEPTION)
2000 1999 TO JUNE 30, 2000
---- ---- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ......................................... $ (8,542,497) $ -- $ (9,351,415)
Adjustments to reconcile net loss to
net cash flows used in operating activities:
Depreciation and amortization ........... 165,652 -- 170,313
Amortization of stock warrants on debt .. 424,832 -- 424,832
Issuance of common stock for services ... 2,736,000 -- 2,736,000
Issuance of warrants for services ....... 3,123,497 -- 3,123,497
Changes in assets and liabilities ....... 359,160 -- 423,956
------------- ------------ ------------
Net cash flows used in operating activities ...... (1,733,356) -- (2,472,817)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Planet Extreme, Ltd .................. (45,000) -- (45,000)
Purchase of property and equipment ............... (116,808) -- (219,214)
Purchase of intangible assets .................... (142,003) -- (202,253)
Decrease in deposits ............................. (36,419) -- (36,419)
------------- ------------ ------------
Net cash provided by investing activities ........ (340,230) -- (502,886)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........... 280,283 -- 2,119,121
Proceeds from exercising stock warrants .......... 600,000 -- 600,000
Issuance of notes payable ........................ 811,000 -- 811,000
Costs of issuance of common stock ................ (411,636) -- (411,636)
------------- ------------ ------------
Net cash flows from financing activities ......... 1,279,647 -- 3,118,485
------------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............... (793,939) -- 142,782
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........ 936,721 -- --
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 142,782 $ -- $ 142,782
============= ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest ................................ $ 9,491 $ -- $ 1,000
============= ============ ============
Non-cash financing activities:
Stock issued for intangible asset .................. $ 50,000 $ -- $ 50,000
============= ============ ============
Stock issued for acquisition of Planet Extreme, Ltd. $ 7,875,000 $ -- $ 7,875,000
============= ============ ============
Issuance of common stock warrants attached to
notes payable .................................. $ 1,508,200 $ -- $ 1,508,200
============= ============ ============
Unaudited-See accompanying notes to condensed financial statements.
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CORPAS INVESTMENTS, INC.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION:
The financial statements included herein have been prepared by Corpas
Investments, Inc. ("Corpas" or the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the financial statements for the year ended December 31, 1999, and the
notes thereto, included in the Company's Form 10-KSB (File No. 0-30100).
The unaudited financial statements included herein include normal recurring
adjustments and reflect all adjustments, which are, in the opinion of
management, necessary for a fair presentation of such financial statements.
Actual results could differ from those estimated.
NOTE 2 - ACQUISITIONS
On February 29, 2000, the Company entered into an agreement to acquire Planet
Extreme Ltd. ("Planet Extreme") a leading distributor of extreme sports content
around the world. Projects of Planet Extreme include the Planet Extreme Film
Festival and Planet Extreme Championships. The Company purchased certain assets
of Planet Extreme for $45,000 in cash, and 3,500,000 shares of common stock
valued at $2.25 per share or $7,875,000. The total purchase price of $7,920,000
was allocated to fixed assets of $6,207 and goodwill of $7,913,793.
NOTE 3 - NOTES PAYABLE
The Company issued 10.5% redeemable promissory notes due the earlier of (i)
February 10, 2001 or (ii) ten (10) business days following the completion by the
Company of a registered public offering raising gross proceeds to the Company of
at least $1,000,000. Warrants to purchase one share of the Company's common
stock have been issued for each $3.00 of principal amount of Note. Warrants are
exercisable at a price of $2.00 per share. At June 30, 2000 the principal amount
of notes issued was $811,000, and options to purchase 270,344 shares of common
stock were outstanding. The warrants are recorded at fair market value at date
of grant as an increase to additional paid in capital. Deferred interest of
$1,508,200 has been recorded to reflect the value of the warrants attached to
these notes. This expense will be amortized over a one-year period. Interest
expense relating to these notes/warrants amounted to $424,832 for the six months
ending June 30, 2000.
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NOTE 4 - STOCKHOLDERS' EQUITY
On February 28, 2000 the company entered into a financial advisory agreement
with D.R.F.W. Group, Inc. (the "Financial Advisor"). The Financial Advisor's
duty is to provide consulting advice to the Company. In exchange for services
provided, the Company, upon entering into the financial advisory agreement, sold
500,000 warrants to purchase common stock to the Financial Advisor for a price
of $10.00. These warrants are exercisable in increments of 300,000, 100,000, and
100,000 at $1.00, $2.00, and $4.00 per share respectively. These warrants were
recorded at their fair market value resulting in an increase to stockholders'
equity of $400,000.
The Company issued 224,000 shares of common stock to Medical Development
Management, Inc. ("MDM"). These shares were issued for consulting services
provided at the initial offering price of the Company of $1.50 per share, or
$336,000. MDM also received options to purchase an additional 112,000 shares of
the Company, at $1.50 per share, 56,000 vesting immediately and 56,000 vesting
on November 22, 2001, plus an additional 112,000 shares at $1.50 per share based
on the procurement of at least 5000 physicians as registered members as defined
under the Content Provider and Services Agreement, vesting immediately upon
procurement.
On May 2, 2000 the Company entered into a consulting agreement, effective as of
January 5, 2000, with an individual. In exchange for consulting services
regarding expansion of the business, the Consultant was issued 400,000 stock
options. These options were exercised at $1.50 per share and valued at $7.50 per
share at the date of grant. This transaction increased stockholders' equity by
$3,000,000.
NOTE 5 - STOCK OPTIONS AND WARRANTS
STOCK BASED COMPENSATION
The Company adopted an Equity Incentive Compensation Plan ("the Plan") in the
year 2000. The plan enables eligible employees to receive non-qualified and
incentive stock options. At June 30, 2000, there were options to officers,
directors and employees for a total of 11,482,500 shares. The majority of the
options are exercisable over three years. After three months of employment,
one-twelfth of the total number of options vests. Then, each month, an
additional one-thirty-sixth vest.
The Company adopted the expense recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation. The
Company values stock options based upon an option-pricing model and recognizes
this value as an expense over the period in which the options vest. Compensation
expense amounted to $2,723,479 for the six month period ended June 30, 2000.
OUTSTANDING WARRANTS
The Company had warrants outstanding to purchase 75,000 shares of common stock
which vested upon the execution of consulting agreements. These warrants are
exercisable in increments of 25,000 shares at prices of $12.00, $15.00, and
$18.00.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES
CONSULTING AGREEMENTS
On January 26, 2000 the Company entered into a consulting agreement with an
individual (the "Consultant"). The Consultant will serve as Vice President of
New Business Development of the Company, and shall serve to research, identify,
evaluate and provide content to be used by the Company in its capacity as a
distributor. For services provided, the Company agreed to issue 150,000 shares
of the Company's common stock in monthly increments over two years. In addition,
the Company agreed to grant the Consultant options for an aggregate of 200,000
shares of common stock, which options vest in equal monthly increments over a
period of two years. The exercise price of the options is $2.75 per share. The
agreement also provides for options for an aggregate of 1,000,000 shares of
common stock, exercisable at $2.75 per share, that will vest and be exercisable
as follows: (a) 50,000 shares for each exclusive 15 hours of usable video
footage, or 15,000 shares for less than 15 hours; and (b) 25,000 shares for each
non-exclusive 15 hours of usable video footage, or 10,000 shares for less than
15 hours. Any of the 1,000,000 options granted under the consulting agreement
that have not vested lapse on the January 26, 2002, unless renewed for
successive one-year terms.
LEGAL PROCEEDINGS
On March 3, 2000, All-Life.com, Inc. as plaintiff filed a complaint in the
Superior Court of the State of California, County of Los Angeles, against the
Chairman of the Board and Chief Executive Officer of the Company. The subject of
the suit involves his actions as Chief Executive Officer. The Company's Board of
Directors resolved to indemnify him with regard to his defense against this
lawsuit. On March 24, 2000, the Company, as plaintiff, filed a separate
complaint against All-Life.com. All-Life.com, Inc., the Company and all
individuals involved are in settlement discussions and the Company hopes to
finalize settlement before the end of this fiscal year.
NOTE 7 - SUBSEQUENT EVENTS
On July 21, 2000 the Company entered into a consulting agreement with Wall
Street Financing Consultants, Inc. (the "Consultant"). Pursuant to the contract
the Consultant will assist the Company in securing capital in the amount of
$8,000,000. In return for services provided the Consultant will be compensated
at the time of funding $75,000 per million received, with any less amount to be
pro-rated and adjusted proportionately for its consulting services.
On July 25, 2000 the Company entered into a financial advisory agreement with
South Shore Investments, Ltd (the "Financial Advisor"). The Financial Advisor
will provide the Company with consulting advice at the request of the Company.
Upon execution of the agreement, the Financial Advisor received warrants to
purchase 750,000 shares of the Company's Common Stock. These warrants are
exercisable in increments of 250,000 at $1.00, $1.50, and $2.00 per share.
The accompanying notes are an integral part of these
condensed financial statements.
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CORPAS INVESTMENTS, INC.
JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING IS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE
IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE BUT ARE NOT LIMITED TO THOSE DISCUSSED BELOW AND
IN OTHER SECTIONS OF THIS REPORT.
OVERVIEW
Corpas Investments, Inc., which conducts business under the name
"MediaWebcast" (the "Company") is an international distributor and licensor of
entertainment programming through a range of distribution channels such as
broadcast television, cable television, satellite television, the Internet, home
video and DVD with the intent of becoming an entertainment and educational media
content provider. The Company intends to focus on targeted
entertainment/educational properties in five broad genres: sports, comedy,
health, music and general entertainment. Currently, the Company is overseeing
the development of properties that target specific demographic and interest
groups. To date, the Company has developed and distributed transmedia content
obtained from its flagship property - Planet Extreme (a Gen X-Y lifestyle and
entertainment brand that has been developed around extreme sports and its
celebrities) as well as from its exclusive use license arrangements with UFO
Video, Inc. and the development of the Ufotv.com website.
Corpas Investments, Inc. was incorporated in Florida under the name
Synergy Investments, Inc. in May 1988. In September 1998, the Company changed
its name to Corpas Investments, Inc. and in October 1999, the Company's common
stock was authorized for quotation on the OTC Bulletin Board under the symbol
"CPIM."
Due to the fact that the Company did not start operations until the
first quarter of 2000 and the rapidly evolving nature of the Internet industry,
the Company believes that financial results to date are not necessarily
meaningful and should not be relied upon as an indication of future performance.
To date, the Company has incurred substantial costs to develop its technology
and assimilate acquisitions. The Company will continue to incur substantial
costs to develop its website, acquire content, build brand recognition and grow
its business. The Company may also incur significant additional costs with the
possible acquisitions of other businesses and technologies relevant to the
Company's growth strategy. These costs may not correspond with a meaningful
increase in revenues in the short term.
In November 1999, the Company acquired by merger Interactive ConEd.com,
Inc. ("ICE"). Prior to that merger, the Company had not conducted any activities
other than the issuance of shares to its shareholders. As a result of the
merger, the Company acquired all of the assets of ICE, including a library of
continuing education and training content for doctors, nurses, allied health
professionals, and other healthcare workers.
Effective February 29, 2000, the Company acquired all of the assets of
Planet Extreme Ltd., a leading distributor of extreme sports content. Projects
of Planet Extreme include the Planet Extreme Film Festival and Planet Extreme
Championships. The assets also included a 50% interest with Yahoo!/
broadcast.com, in PlanetExtreme.com.
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In June 2000, the Company entered into an agreement with Fox Sports Net
whereby the Company will supply exclusively to Fox Sports Net four separate
series, of 52 weeks each: Planet Extreme, CorX Games, Planet Extreme Film
Festival and an as yet untitled "surf, ski, snow and music" show. The Company
has commenced production of the first series, which has an initial air date of
October 2, 2000.
Over the next 12 months, the Company is focused on the production of
the sports series for Fox Sports Net and generating revenue from advertising
spots during these shows. The Company will be required to hire additional
technical personnel and other staff for production of the four series. Upon last
airing of these shows, the Company intends to sell the shows internationally and
to also sell or license them through other distribution channels (such as
specialty videos and DVD). The Company also intends to pursue revenue from
banner advertisement on its Planet Extreme and Ufotv websites and from the
licensing of its tape libraries.
The ability of the Company to realize its plans over the next 12 months
involves numerous risks and uncertainties, some of which are the Company's
ability to obtain additional financing in the short-term and long-term; the
ability of the Company to acquire by purchase or license sufficient content; the
Company's ability to manage growth and successfully integrate acquired companies
and operations; and the Company's ability to compete against competitors who
have more resources.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000
OVERVIEW. The Company incurred losses of $5,954,218 and $8,542,497 for
the three and six month periods ended June 30, 2000, respectively. The Company
did not have operations through the second quarter, 1999.
REVENUE. The Company had revenue of $704,917 and $712,917 for the three
and six month periods ended June 30, 2000, respectively. The Company will
produce four 52 week episodes for the Fox Sports Network during the next year.
The Company will generate advertising revenue from spots during these shows. The
shows, upon their last airing, will be sold internationally. In addition, after
each show airs domestically, specialty videos and DVD's will be sold through
various distribution networks. The Company anticipates that its Planet Extreme
and Ufotv websites will execute banner advertisement and e-commerce sales before
the end of the year. Tape libraries are also expected to generate licensing
revenue.
AMORTIZATION. Amortization expense amounted to $114,087 and $147,041
for the three months and six months ended June 30, 2000, respectively. The
amortization charge to operations represents the construction of the Company's
websites, the acquisition of the Ufotv domain name, and goodwill from the
acquisition of Planet Extreme (Note 2). The cost of the websites amounted to
$202,000 at June 30, 2000 and is being amortized over a five-year period.
Goodwill is amortized principally over a 20-year period.
DEPRECIATION. Depreciation expense amounted to $11,757 and $18,611 for
the three and six months ended June 30, 2000, respectively. Depreciation expense
consists of depreciation on the Company's tape library, computer hardware and
software, telephone equipment, office equipment and leasehold improvements.
Capital assets are depreciated on a straight-line basis over their estimated
useful lives: the tape library, computer hardware and software, and telephone
equipment over five years; office equipment over three years; and leasehold
improvements over the life of the underlying lease.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses primarily consist of management, financial and administrative personnel
expenses and related costs, and professional service and consulting fees.
General and administrative expenses amounted to $5,113,107 and $7,636,335 for
the three and six month periods ended June 30, 2000, respectively.
(Non-reoccurring consulting fees of $2,893,441 and $3,299,406 for the three and
six month periods ended June 30, 2000, respectively, are included in general and
administrative expenses.) The Company anticipates that normal and recurring
general and administrative expenses will increase during the next year as the
Company expands its activities.
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RESEARCH AND DEVELOPMENT. There was no charge to operating expenses for
research and development during the three months ended June 30, 2000. The
Company plans to develop its research and development staff during 2001 as it
focuses on improving and expanding the features and availability of its
Internet/Intranet network-enabled software products. Research and development
costs are expensed as incurred. However, computer software development costs
incurred after technological feasibility of a product is established are
capitalized. Technological feasibility is generally not established until
substantially all related product development is complete and the product is
released.
SALES AND MARKETING. Promotional expense amounted to $124,795 and
$130,431 for the three and six month periods ended June 30, 2000, respectively.
The Company plans to increase its sales and marketing team to sell sponsor and
commercial air time for the Fox Sport Network series, to continue international
and syndicated sales and to market software to new and existing customers
focusing on the Company's existing entertainment properties. The Company plans
to launch a branding and advertising campaign focused on building awareness of
its products and services to all of its market segments.
INCOME TAXES. No provision for federal or state income taxes has been
recorded during the periods ended June 30, 2000 as a result of losses incurred
during those, and prior, periods. This loss carryforward, which begins to expire
in 2019, can be used to offset future taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations and capital
expenditures primarily through private sales of equity and debt securities,
which have resulted in net proceeds of $3,118,485 through June 30, 2000. At June
30, 2000, the Company had $142,782 in cash and cash equivalents and a working
capital deficit of $1,187,435. The Company continues to pursue additional
capital to fund its working capital and capital expenditure requirements.
However, there can be no assurance that the Company will be able to obtain
additional funding through the issuance of additional equity or debt securities
through private placement offerings or through other means, or that the Company
will be able to continue operations.
The Company has not yet generated positive cash flows from operating
activities. Cash used in operating activities was $1,733,356 for the six months
ended June 30, 2000. The Company does not expect to generate positive cash from
operations for the year ending December 31, 2000.
The Company's investing activities have consisted of capital
expenditures totaling $340,230 for the six months ended June 30, 2000. This
increase includes additions to the Company website and purchases of computer
equipment.
Net cash provided by financing activities was $1,279,647 for the six
months ended June 30, 2000. Net cash provided by financing activities resulted
primarily from the issuance of common stock warrants and debt instruments.
The Company foresees a significant increase in operating expenses in
order to implement its Internet/Intranet enabled applications as well as the
continued upgrade of its software application. The Company expects to fund these
increases with further issuance of equity or debt securities of the Company and
from advertising revenues that are expected to begin in the third fiscal quarter
of 2000.
The ability of the Company to satisfy its obligations and to carry out
its business plan depends in part on its ability to reach a profitable level of
operations and its ability to secure both short and long-term financing for the
development and expansion of its main businesses. The Company is currently in
negotiations with financial sources to provide additional funding through equity
or debt financing to fund its current business plan. Without short or long-term
financing, in order to meet its current and future capital needs, the Company
will depend on revenue generated from the production of original programming and
proceeds from the sale of additional shares of common stock. There can be no
assurance, however, that the Company will be successful in obtaining any such
additional equity or debt financing and, if not successful, the Company will not
be able to continue operations.
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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
NEED FOR ADDITIONAL CAPITAL TO CONTINUE OPERATIONS. The Company must
obtain additional equity or debt financing to meet its short term objectives and
continue operations. The Company also will require equity or debt financing for
its long-range plans. If the Company is successful in obtaining needed
additional financing, the Company may encounter business initiatives that
require significant cash commitments for unanticipated problems or expenses that
could result in a requirement for additional cash during that time. If the
Company raises additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of its shareholders would be reduced,
and such securities may have rights, preferences, or privileges senior to its
common stock. If adequate funds are not available, or are not available on
acceptable terms, the Company's ability to fund its expansion, take advantage of
business opportunities, develop or enhance its products or otherwise respond to
competitive pressures would be significantly limited, and it would significantly
impair the Company's operations.
STOCK PRICE FLUCTUATIONS. The Company's participation in a highly
competitive industry often results in significant volatility in the Company's
common stock price. This volatility in the stock price is a significant risk
investors should consider.
FORWARD LOOKING STATEMENTS. This report contains certain
forward-looking statements that are based on current expectations. In light of
the important factors that can materially affect results, including those set
forth above and elsewhere in this report, the inclusion of forward-looking
information herein should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
The Company may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to market its
products and services; competitive conditions within the industry may change
adversely; the Company may be unable to retain existing key management
personnel; the Company's forecasts may not accurately anticipate market demand;
and there may be other material adverse changes in the Company's operations or
business. Certain important factors affecting the forward looking statements
made herein include, but are not limited to (i) accurately forecasting capital
expenditures and (ii) obtaining new sources of external financing. Assumptions
relating to budgeting, marketing, product development and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its capital
expenditure or other budgets, which may in turn affect the Company's financial
position and results of operations. See further discussion regarding forward
looking statements elsewhere in this Report.
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13
CORPAS INVESTMENTS, INC.
JUNE 30, 2000
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 2000, All-Life.com, Inc., as plaintiff, filed a complaint
in the Superior Court of the State of California, County of Los Angeles, against
the Chairman of the Board, Ross A. Love, defendant. The subject of the lawsuit
concerns Mr. Love's actions as former Chief Executive Officer of the Company,
and the Company's Board of Directors agreed to indemnify him with regard to his
defense against this lawsuit. On March 24, 2000, the Company, as plaintiff,
filed a separate complaint in the Superior Court of the State of California,
County of Los Angeles against All-Life.com, Inc., Jonathan Dariyanani and Ivan
Sokolsky, defendants, alleging fraud and breach of contract.
All-Life.com, Inc., the Company and Ross A. Love are in settlement
discussions and the Company hopes to finalize settlement before the end of the
fiscal year.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On July 25, 2000, the Company entered into a Financial Advisory Agreement
with South Shore Investments Ltd., Inc. ("Consultant") for financial advice
regarding business and financing activities. The term of this Agreement is for a
period of one year. As consideration for such services and the payment of $10.00
by the Consultant, the Company issued a common stock purchase warrant (included
in the consulting agreement) exercisable for a period of five (5) years from
July 25, 2000 for an aggregate of 750,000 shares of the Company's common stock
at the following exercise prices: (250,000 shares at $1.00 per share; 250,000
shares at 1.50 per share; and 250,000 shares at $2.00 per share). The warrant
includes piggy back registration rights, requiring the Company to include the
common stock underlying the warrant in a registration statement registering the
Company's securities or that of any of its selling stockholders.
In February 2000, the Company commenced a private placement of its
10.5% redeemable promissory notes in the aggregate principal offering amount of
$2,000,000 (the "Notes"). The Notes are due and payable on the earlier of (i)
February 10, 2001, or (ii) ten (10) business days following the completion by
the Company of a registered public offering raising gross proceeds to the
Company of at least $1,000,000. The Notes are accompanied by warrants to
purchase shares of common stock of the Company at a rate of one (1) share of
common stock for each $3.00 of principal amount of the Notes held, exercisable
at a price of $2.00 per share. As of August 3, 2000 an aggregate of $1,066,000
in gross proceeds representing the issuance of 355,333 warrants was raised.
The foregoing securities were issued in reliance upon Section 4(2) of
the Securities Act. The investors were provided information about the Company or
had access to such information, and they were provided the opportunity to ask
questions of management concerning the information provided or made available.
The investors confirmed their investment intent in writing, and the certificates
bear a legend accordingly.
During the first and second quarters of 2000, the Company finalized
option agreements for its officers and directors for a total of 10,800,000
shares. Of that amount, options for 4,000,000 shares vest within one year from
the date of grant and options for 6,800,000 shares vest within three years from
the date of grant. Of the aggregate number of options granted, at June 30, 2000,
options for 2,406, 940 shares were fully vested. Subject to continued
employment, all options expire ten (10) years from the date of grant and have
exercise prices ranging from $1.50 to $7.40. All options are non-qualified stock
options (and not Incentive Stock Options as defined in Section 422(b) of the
Internal Revenue Code) and subject to termination upon certain events, such as
termination of employment with cause. Of the total number of options granted to
officers and directors, 10,400,000 are subject to 50% acceleration for certain
events such as a change in control or termination without cause.
The Company is relying on the exemption provided under Section 4(2)
of the Securities Act of 1933, as amended, for the issuance of these options.
Information about the Company was provided to the optionees or made available
to them along with the opportunity to ask questions of management about the
information provided or made available. The options contain a provision
restricting their transfer which optionees acknowledge upon execution of their
option agreements.
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(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
On June 26, 2000 the Company entered into a Real.com Guide Co-Branded Web
Page Agreement with RealNetworks, Inc. ("RN") under which RN agreed to promote
and distribute links to a co-branded RN and Company web page that features the
Company's multimedia extreme sport and UFO content. Under the terms of this
agreement, the Company is solely responsible for and shall retain one hundred
percent (100%) of the revenue from its sale of audio, video, multimedia,
streaming, banner or any other form of advertising embedded in the content
provided by the Company ("Intra-Stream Ads") and all advertising on the
Company's site, and RN will retain one hundred percent (100%) of the revenue
from its sale of any non-Intra Stream Ads on the Real.com Guide, RN's site, the
Promotion Services, RN's products and services, and the Company's Co-Branded Web
Page.
On June 28, 2000, the Company entered into an agreement with Fox Sports
Net whereby the Company will supply exclusively to Fox Sports Net four (4)
separate series, fifty two (52) weeks each: Planet Extreme, CorX Games, Planet
Extreme Film Festival, and an as yet untitled "surf, ski, snow and music" show.
Initial start dates of the series are scheduled as follows: CorX Gamesweek of
October 2, 2000; Planet Extreme Film Festival - week of October 2, 2000;
untitled show - week of November 6, 2000, Planet Extreme - week of December 4,
2000. Under the terms of this agreement, the Company will be responsible for all
costs associated with the production and delivery of the programs. The Company
will pay to Fox Sports Net a distribution fee of $7,500 per episode, per series,
one month prior to episode air dates. (ie. payment for October airings of
$75,000 due September 1, 2000; payment for November airings of $90,000 due
October 1, 2000; payment for December airings of $120,000 due November 1, 2000
). The Company will receive eight (8) thirty second (:30) units of commercial
inventory within each program of each show to sell for advertising revenue, and
Fox Sports Net will retain all remaining commercial inventory.
Effective July 21, 2000, the Company entered into a Financial Advisory
Agreement with Wall Street Financing Consultants, Inc. ("Consultant") for
financial consulting to assist the Company in securing capital in the amount of
$8,000,000. The term of this Agreement is for a period of one year. In the event
that the Consultant introduces the Company to a source that provides full
funding, the Consultant will be compensated by the Company at the time of
funding in the amount of $75,000 per million received (with any lesser amount
pro-rated and adjusted accordingly).
The Company has also been renting, for an aggregate of $4,250 per month, a
house in Santa Monica which has served as additional office space. This lease
has now been terminated, effective August 27, 2000.
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15
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS.
NUMBER NAME
------- ------
10.1 Financial Advisory Agreement between Company and South Shore
Investments Ltd. Inc.*
10.2 Real.com Guide Co-Branded Web Page Agreement between Company and
RealNetworks, Inc.*
10.3 Series Agreement between Company and Fox Sports Net*
10.4 Financial Advisory Agreement between Company and Wall Street
Financing Consultants, Inc.*
10.5 Office Lease dated January 22, 2000 (1)
10.6 Form of Subscription Agreement and Investment Letter, dated as of
February 4, 2000, to be executed between the Company and the note
holder in connection with 10.5% Redeemable Promissory Note Offering
(2)
10.7 Form of 10.5% Redeemable Promissory Note (3)
10.8 Form of Common Stock Purchase Warrant accompanying 10.5% Redeemable
Promissory Note(4)
27.1 Financial Data Schedule* (submitted only in electronic format for
SEC use only)
* Filed herewith
(1) Incorporated by reference and filed as an exhibit to the Company's Quarterly
Report on Form 10-QSB, filed on May 22, 2000.
(2) Incorporated by reference and filed as an exhibit to the Company's Form
10-QSB/A, filed on June 14, 2000.
(3) Incorporated by reference and filed as an exhibit to the Company's Form
10-QSB/A, filed on June 14, 2000.
(4) Incorporated by reference and filed as an exhibit to the Company's Form
10-QSB/A, filed on June 14, 2000.
(B) REPORTS ON FORM 8-K
(i) The Company filed a Current Report on Form 8-K/A on May 17, 2000,
amending the Company's Current Report on Form 8-K filed March 21, 2000.
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16
CORPAS INVESTMENTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPAS INVESTMENTS, INC.
Date: August 14, 2000
/s/ MOLLY A. MILES
--------------------------------
Molly A. Miles Chief Executive
Officer (Principal Executive Officer)
/s/ EDWARD Z. ESTRIN
--------------------------------
Edward Z. Estrin, Chief Financial Officer
(Principal Financial Officer)
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17
EXHIBIT INDEX
NUMBER NAME
- - ------ ------
10.1 Financial Advisory Agreement between Company and South Shore
Investments Ltd. Inc.*
10.2 Real.com Guide Co-Branded Web Page Agreement between Company and
RealNetworks, Inc.*
10.3 Series Agreement between Company and Fox Sports Net*
10.4 Financial Advisory Agreement between Company and Wall Street
Financing Consultants, Inc.*
27.1 Financial Data Schedule* (submitted only in electronic format for
SEC use only)
* Filed Herewith