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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 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 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 NOVEMBER 6, 2000
----- ----------------------------------
Common Stock
Par value $.001 per share [18,161,470]
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 Consolidated Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999 ....................................................................... 3
Condensed Consolidated Stated of Operations for the Three Months and
Nine Months ended September 30, 2000 and 1999 (Unaudited) ............................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2000 (Unaudited) .................................................... 5
Notes to Financial Statements ................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................... 10
PART II. Other Information
ITEM 1. Legal Proceedings ............................................................................... 14
ITEM 2. Changes in Securities and Use of Proceeds ....................................................... 14
ITEM 3. Defaults upon Senior Securities ................................................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders ............................................. 15
ITEM 5. Other Information ............................................................................... 15
ITEM 6. Exhibits and Reports on Form 8-K ................................................................ 16
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 September 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 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
SEPTEMBER 30,
2000 DECEMBER 31,
(NOTE 1) 1999
(Unaudited) (NOTE 1)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 802,986 $ 936,721
Accounts receivable 33,586 --
Employee advances 8,051 15,500
Production inventory 27,376 --
Prepaid expenses 136,577 --
------------ ------------
Total current assets 1,008,576 952,221
------------ ------------
Property and equipment 247,060 102,403
Less: accumulated depreciation (34,320) (2,791)
------------ ------------
Net property and equipment 212,740 99,612
------------ ------------
Other assets:
Goodwill, net 7,678,373 --
Intangible assets, net 238,208 58,383
Deferred interest 767,882 --
Deposits 39,764 --
------------ ------------
Total other assets 8,724,227 58,383
------------ ------------
$ 9,945,543 $ 1,110,216
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,066,000 $ --
Accounts payable 344,224 126,880
Accrued liabilities 224,117 53,416
Deposits on unissued common stock 1,725,500 1,738,838
------------ ------------
Total current liabilities 3,359,841 1,919,134
------------ ------------
Stockholders' equity:
Common stock, par value $.001; 50,000,000
shares authorized; 15,160,470 and 9,600,000
shares issued and outstanding 15,160 9,600
Additional paid-in capital 19,229,678 --
Deficit accumulated during the development stage (12,653,536) (812,918)
Subscriptions receivable (5,600) (5,600)
------------ ------------
Total stockholders' equity 6,585,702 (808,918)
------------ ------------
$ 9,945,543 $ 1,110,216
============ ============
See accompanying notes to condensed financial statements.
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CORPAS INVESTMENTS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
JUNE 22, 1999
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------ --------------
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ --------------
REVENUES $ 60,881 $ -- $ 773,798 $ -- $ 773,798
------------ ------------ ------------ ------------ ------------
COST OF REVENUES 729 -- 1,174,247 -- 1,174,247
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 60,152 -- (400,449) -- (400,449)
------------ ------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,829,143 150 10,465,478 450 11,275,713
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (2,768,991) (150) (10,865,927) (450) (11,676,162)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 5,539 -- 9,984 -- 11,301
Interest expense (534,669) -- (984,675) -- (984,675)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (3,298,121) $ (150) $(11,840,618) $ (450) $(12,649,536)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,526,773 5,600,000 13,251,109 5,600,000
NET LOSS PER SHARE $ (.23) $ -- $ (.89) $ --
============ ============ ============ ============
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CORPAS INVESTMENTS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED JUNE 22, 1999
SEPTEMBER 30, (DATE OF
----------------------------- INCEPTION) to
2000 1999 SEPT. 30, 2000
------------ ------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(11,840,618) $ (450) $(12,649,536)
Adjustments to reconcile net loss to
net cash flows used in operating activities:
Depreciation and amortization 290,312 -- 294,970
Discount amortization 931,548 -- 931,548
Issuance of common stock for services 336,000 -- 336,000
Issuance of options/warrants for services 7,248,773 -- 7,248,773
Services provided as capital contribution -- 450 --
Changes in assets and liabilities 162,930 -- 327,726
------------ ------ ------------
Net cash flows used in operating activities (2,871,055) -- (3,510,519)
------------ ------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Planet Extreme, Ltd (45,000) -- (45,000)
Purchase of property and equipment (138,450) -- (240,853)
Purchase of intangible asset (157,927) -- (218,177)
------------ ------ ------------
Net cash provided by investing activities (341,377) -- (504,030)
------------ ------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 1,066,000 -- 1,066,000
Proceeds from issuance of common stock 262,383 -- 2,001,221
Proceeds from exercising stock options 600,000 -- 600,000
Costs of issuance of common stock (575,186) -- (575,186)
Proceeds from deposits on unissued stock 1,725,500 -- 1,725,500
------------ ------ ------------
Net cash flows from financing activities 3,078,697 -- 4,817,535
------------ ------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (133,735) -- 802,986
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 936,721 -- --
------------ ------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 802,986 $ -- $ 802,986
============ ====== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest $ 3,048 $ -- $ 3,048
============ ====== ============
Stock issued for intangible asset $ 50,000 $ -- $ 50,000
============ ====== ============
Acquisition of Planet Extreme $ 7,875,000 $ -- $ 7,875,000
============ ====== ============
Issuance of common stock warrants attached to notes payable $ 1,699,430 $ -- $ 1,699,430
============ ====== ============
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CORPAS INVESTMENTS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires
companies to recognize all derivative contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. If certain conditions
are met, a derivative may specifically be designated as a hedge, the objective
of which is to match the timing of gain or loss recognition of: (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk; or (ii) the earnings effect of the hedged transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized as income in the period of change. FAS 133, as amended by FAS 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into any derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect the new standard to affect its financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a non-compensatory plan, (c) the accounting consequences of
various modifications to the previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
The Company believes that the impact of FIN 44 will not have a material effect
on the Company's financial position or results of operations.
In June 2000, the AICPA issued Statement of Position (SOP) 00-2,
Accounting by Producers or Distributors of Films. The guidance in this SOP
applies to all types of films, and is applicable to all producers or
distributors that own or hold rights to distribute or exploit films. For
purposes of this SOP, films are defined as feature films, television specials,
television series, or similar products including animated films and television
programming that are sold, licensed or exhibited, whether produced on film,
videotape, digital, or other video recording format. SOP 00-2 is effective for
financial statements for fiscal years beginning after December 15, 2000. We are
in the process of determining the impact of SOP 00-2 on our financial
statements.
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CORPAS INVESTMENTS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - 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 4 - NOTES PAYABLE
During the nine months ended September 30, 2000, the Company issued
10.5% redeemable promissory notes due the earlier of (i) February 20, 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 September 30, 2000 the principal amount of
notes issued was $1,066,000, and options to purchase 355,343 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
$1,699,430 has been recorded to reflect the discount related to these notes.
This discount will be amortized over a one-year period. Interest expense
relating to these notes amounted to $931,548 for the nine months ending
September 30, 2000.
NOTE 5 - STOCKHOLDERS' EQUITY
During the three and nine months ended September 30, 2000, the Company
issued 681,891 and 2,026,470 shares of common stock, respectively. The shares
were issued in three offerings. The first private offering, which took place in
the first quarter of the year, was to raise $2,025,000 by issuing 1,350,000
shares at $1.50 per share. A second offering took place in August 2000, and the
Company raised $225,000 through the issuance of 300,000 shares of common stock
at $0.75 per share. A third offering also took place in August 2000, and the
Company raised $1,500,500 through the issuance of 3,301,000 shares of common
stock at $0.50 per share. The stock from the August offerings had not yet been
issued as of September 30, 2000, and has been recorded as deposits on unissued
common stock. In the three months ended September 30, 2000, the Company paid
consultants $163,550 and issued them 675,225 shares of common stock for their
services related to the third private offering.
The Company has issued 3,500,000 shares of common stock valued at
$7,875,000 for the purchase of Planet Extreme during the nine months ended
September 30, 2000. (See Note 2.) The Company has also issued 10,000 shares of
common stock valued at $50,000 for the purchase of a domain name during the nine
month period.
On March 24, 2000, the Company issued 224,000 shares of common stock
valued at $336,000 for consulting services. On May 2, 2000, the Company also
issued 400,000 stock options to a consultant valued at $2,400,000 at the date of
grant, which were exercised at $1.50 per share raising $600,000 during the nine
months ended September 30, 2000.
The Company recorded $1,725,277 and $4,448,774, respectively, during
the three and nine months ended September 30, 2000 for compensation charged to
additional paid-in capital for the vesting of stock options under the Company's
employee stock option plan. Additionally, the Company charged $191,230 and
$1,699,430 to additional paid-in capital for interest expense related to stock
warrants issued in connection with its debt offering during the three and nine
month periods respectively.
The Company also retired 600,000 shares of common stock from one of the
founding stockholders during the nine months ended September 30, 2000.
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CORPAS INVESTMENTS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - STOCK OPTIONS AND WARRANTS
Employee Stock Option Plan
The Company entered into an Equity Incentive Compensation Plan "the
Plan" in the year 2000. The plan enables eligible employees to receive incentive
stock options valued at market prices at the date of grant. The majority of the
options are exercisable over three years. After three months of employment,
one-twelfth of the total number of options vests. An additional one-thirty-sixth
vests each month thereafter. 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 $1,725,277 and
$4,448,774 for the three and nine month periods ended September 30, 2000. The
Company has 12,601,000 employee stock options outstanding at September 30, 2000,
with approximately 33% of that balance vested. Option prices range from $1.00 to
$7.40, expiring ten years from the date of grant.
Outstanding Warrants
The Company has issued warrants to various consultants with various
vesting schedules and has 2,974,000 warrants outstanding at September 30, 2000.
The warrants are exercisable at prices ranging from $1.00 to $18.00, expiring
within five years.
The Company also has 355,343 warrants outstanding in connection with
its 10.5% redeemable promissory note debt offering. These warrants are
exercisable at $2.00 for a three year period ending February 20, 2003.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements
The Company has a consulting agreement with a provider of continuing
medical education materials requiring the payment of $1,000,000 over a five year
period ending December 2004 payable in monthly installments of $16,667.
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 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 January 26, 2002, unless
renewed for successive one-year terms.
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
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CORPAS INVESTMENTS, INC.
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 August 8, 2000, the Company entered into a non-exclusive placement
agreement with a consultant to pay a 6% fee on any money raised by the
consultant, with financing anticipated between $100,000 and $2,500,000.
Licensing Agreement
On September 25, 2000, the Company entered into an agreement to receive
exclusive rights to edit, produce, distribute and sell Corextreme Games
programming. The Company will pay $5,000 per month for each month of episodes
delivered by the provider. The Company will also be required to pay a percentage
of royalties on certain sales associated with the contract.
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 former Chief Executive Officer of the Company. The
subject of the suit involves his actions while serving as the 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. The Company,
All-Life.com, Inc. and all individuals involved are in settlement discussions,
and the Company hopes to finalize settlement before the end of this year.
NOTE 8 - SUBSEQUENT EVENTS
On October 4, 2000 the Company entered into a Settlement Agreement and
Release with each of D.R.F.W. Group, Inc. ("DRFW"), South Shore Investments
Ltd., Inc. ("SSI") and John Thristino, individually and as President of each
DRFW and SSI. In full and complete satisfaction of any and all disputes as to:
(a) cash payments which may be claimed to be due to DRFW under the terms of the
DRFW Agreement, entered into on February 28, 2000 and (b) obligations to SSI
(including, without limitation, the issuance of certain warrants under the SSI
Agreement, entered into on July 25, 2000), the Company agreed to pay to DRFW, or
its designee, the sum of $106,600, representing an amount equal to ten (10%) per
cent of funding actually received by the Company by means of partial services
provided under the DRFW Agreement. Upon payment in full by the Company of this
amount by November 4, 2000, the DRFW Agreement and the SSI Agreement (and any
obligations of the Company to issue a warrant under the SSI Agreement) each
terminate and are of no further force and effect, except as to continuing
obligations of the Company for warrants issued under the DRFW Agreement.
On October 9, 2000, the Company entered into a consulting agreement to
assist in the search for merger and acquisition candidates. The consultant will
be paid 32,500 shares of common stock upon acceptance of the agreement plus 5%
of the total value of any transaction consummated.
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CORPAS INVESTMENTS, INC.
THIRD QUARTER ENDING SEPTEMBER 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 of
"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. 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 properties - Planet Extreme Sports Games and StreetPace (a Gen X-Y
lifestyle and entertainment program 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.
The Company was incorporated under the laws of the State of Florida
under the name Synergy Investments, Inc. in May 1988. The Company changed its
name to Corpas Investments, Inc. in September, 1998. The Company's common stock
was authorized for quotation on the OTC Bulletin Board under the symbol "CPIM"
in October, 1999.
Due to the fact that the Company did not start operations until the
last quarter of 1999 and the rapidly evolving nature of the Internet industry,
the Company believes that financial results 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 to
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.
In September 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, Corextreme Games, Planet
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Extreme Film Festival and StreetPace, a "surf, ski, snow and music" show. The
Company has commenced production of three of the four series, with the first
episodes airing the first week of October, 2000.
Over the next 12 months, the Company will focus on the production of
the Fox Sports Net series and will generate 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
advertisements on its Planet Extreme and Ufotv websites and from the licensing
of its tape libraries.
The Company has also developed a state of the art, groundbreaking media
tracking system, comprised of software and expertise specifically designed to
target and eliminate incidents of copyright infringement on the Internet. The
Company intents to market this tracking system to all companies concerned about
copyright infringement on the Internet.
The ability of the Company to realize its plans over the next 12 months
involves numerous risks and uncertainties, including, 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 NINE MONTHS ENDED SEPTEMBER 30, 2000
OVERVIEW. The Company incurred losses of $3,298,121 and $11,840,618 for
the three and nine month periods ended September 30, 2000, respectively. The
Company did not have continuing operations during the third quarter of 1999.
REVENUE. The Company had revenue of $60,881 and $773,798 for the three
and nine month periods ended September 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 $111,742 and $258,783
for the three months and nine months ended September 30, 2000, respectively. The
amortization charges to operations represent 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
$218,177 at September 30, 2000 and is being amortized over a five-year period.
Goodwill of $7,909,054 is being amortized over a 20-year period.
DEPRECIATION. Depreciation expense amounted to $12,918 and $31,529 for
the three months and nine months ended September 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 are depreciated 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 fees. General and
administrative expenses amounted to $2,829,143 and $10,465,478 for the three and
nine month periods ended September 30, 2000, respectively. The Company
anticipates that general and administrative expenses will increase during the
next 12 months 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 nine months ended September 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 $23,667 and
$154,098 for the three and nine month periods ended September 30, 2000,
respectively. The Company plans to increase its sales and marketing team to sell
sponsor and commercial airtime 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 income taxes has been recorded
during the periods ended September 30, 2000 as a result of losses incurred
during those, and prior periods. This loss carry-forward, which begins to expire
in 2019, can be used to offset future taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been significant. 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 $4,817,535 from inception through September 30,
2000. At September 30, 2000, the Company had $802,986 in cash and cash
equivalents and a working capital deficit of $2,351,265. In October 2000, the
Company issued all of the common stock related to the $1,725,500 liability for
deposits on unissued common stock. 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 $2,871,055 for the nine months
ended September 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 $341,377 for the nine months ended September 30, 2000.
This increase includes additions to the Company website and purchases of
computer equipment.
Net cash provided by financing activities was $3,078,697 for the nine
months ended September 30, 2000. Net cash provided by financing activities
resulted primarily from deposits on unissued common stock 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 fourth quarter of
2000.
The Company's ability 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.
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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. Such 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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CORPAS INVESTMENTS, INC.
THIRD QUARTER ENDING SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 2000, All-Life.com, Inc. ("All-Life"), filed a complaint in
the Superior Court of the State of California, County of Los Angeles, against
the Company's Chairman, Ross A. Love. All-Life alleges that Mr. Love, as former
Chief Executive Officer of the Company, proposed a merger between All-Life and
the Company with the intent and motivation to gain plaintiff's trust and
confidence to the point that Mr. Love could gain control of All-Life's assets
and business operations under the guise of due diligence. Although the Company
was not named in the lawsuit, the Company's Board of Directors agreed to
indemnify Mr. Love in his defense against this lawsuit. On March 24, 2000, the
Company 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 alleging fraud and breach of contract. All-Life,
the Company and Mr. Love are presently involved in settlement discussions with
regards to the foregoing lawsuits. The Company expects to finalize settlement of
these matters by the end of its fiscal year.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c)
In August 2000, as a result of its agreement with Chicago Investment
Group, Inc., described in Item 5, the Company conducted a private placement of
its common stock in the aggregate amount of $225,000 at an offering price of
$0.75 per share. This private placement resulted in the issuance of 300,000
shares of the Company's common stock with gross proceeds to the Company of
$225,000.
On August 10, 2000, the Company entered into an agreement for
non-exclusive financial advisory services with NLC, Inc. ("Consultant") pursuant
to which Consultant assisted the Company in analyzing and assessing alternatives
for raising capital and in formulating the optimum strategy to meet immediate
working capital and capital resources needs in an aggregate amount of
$1,500,500. As consideration for such services Consultant received: (a) monetary
compensation equal to ten per cent 10% of funding received by the Company
through introductions made by Consultant, in an aggregate amount of $150,050 and
(b) an aggregate of 675,225 shares of the Company's common stock (valued at
$0.50 per share) in blocks of 45,000 shares for each $100,000 of funding
received by the Company through introductions made by Consultant.
In August 2000, as a result of its agreement with NLC, Inc., the
Company commenced a private placement of its common stock to obtain an aggregate
principal amount of $1,500,500. This private placement resulted in the issuance
of 3,001,000 shares of the Company's common stock (at an offering price of $0.50
per share) with gross proceeds to the Company of $1,500,500.
During the third quarter of 2000, the Company negotiated option
agreements with Molly A. Miles, as Chief Executive Officer, and Jonathan Loew,
as Executive Vice President of Business Development, for an aggregate of
3,500,000 shares. Of that amount, options for 1,386,685 shares vest within one
year from the dates of grant and the remaining shares vest within three years
from the dates of grant.
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Of the aggregate number of options granted to officers, directors and
employees during the first, second and third quarters of 2000, at September 30,
2000, options for 4,129,513 shares were fully vested. Subject to continued
employment, all of these options expire ten (10) years from the date of grant
and have exercise prices of between $1.00 and $7.40. Of the aggregate number of
options granted, 12,329,265 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; the remaining 271,735 are Incentive Stock Options. Of the
total number of options granted to officers and directors, 11,800,000 are
subject to 50% acceleration for certain events such as a change in control or
termination without cause.
On October 4, 2000 the Company entered into a Settlement Agreement and
Release with each of D.R.F.W. Group, Inc. ("DRFW"), South Shore Investments
Ltd., Inc. ("SSI") and John Thristino, individually and as President of each
DRFW and SSI. In full and complete satisfaction of any and all disputes as to:
(a) cash payments which may be claimed to be due to DRFW under the terms of the
DRFW Agreement, entered into on February 28, 2000 and (b) obligations to SSI
(including, without limitation, the issuance of certain warrants under the SSI
Agreement, entered into on July 25, 2000), the Company agreed to pay to DRFW, or
its designee, the sum of $106,600, representing an amount equal to ten (10%) per
cent of funding actually received by the Company by means of partial services
provided under the DRFW Agreement. Upon payment in full by the Company of this
amount by November 4, 2000, the DRFW Agreement and the SSI Agreement (and any
obligations of the Company to issue a warrant under the SSI Agreement) each
terminate and are of no further force and effect, except as to continuing
obligations of the Company for warrants issued under the DRFW Agreement.
On October 9, 2000 the Company entered into a Business Consulting
Agreement with Windsor Partners, Inc. ("Consultant") whereby Consultant will
provide advice and counsel regarding the Company's strategic business plans,
strategy and negotiations with potential business strategic partnering,
corporate planning and/or other general business consulting needs. As
consideration, the Company agreed to issue to Consultant 32,500 shares of its
common stock and granted certain registration rights to the Consultant. Other
advisory fees in the form of cash payments contingent upon designated events are
also specifically provided for in the agreement.
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.
(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 August 8, 2000 the Company entered into an agreement with Chicago
Investment Group, Inc. (the "Placement Agent") for financial advisory services
whereby the Placement Agent will provide introductions for the Company to find
sources to meet its anticipated financing of between $100,000 and $2,500,000. As
compensation for the Placement Agent's services, the Company will pay a fee of
6% of money received as a result of introductions
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made pursuant to this agreement, payable upon the receipt of such monies. As of
September 30, 2000, introductions by the Placement Agent resulted in gross
proceeds to the Company of $225,000, through the private placement of the
Company's Common Stock, and the Placement Agent was paid a consulting fee of
$13,500.
On August 14, 2000, the Company entered into a Content License and
Promotion Agreement with RealNetworks, Inc. ("RN") whereby the Company will
exclusively provide content for use in RN's promotional and marketing activities
in RN's editorially driven Internet web sites and services that showcase
multimedia content available on the Internet. This agreement is effective
through November 14, 2000 and is renewable by RN for subsequent three month
periods.
On September 25, 2000, the Company entered into an exclusive licensing
agreement with each of Yoshimoto Kogya, Ltd. and Nux Inc. (collectively,
"Licensors") for extreme sports related materials, including without limitation
materials on events of X-Sports and Corextreme Games, whereby the Company will
have the exclusive right to edit and produce thirty-minute episodes and
distribute, license, market and sell the resulting programs through television,
multi-media and home video. The Company shall pay the sum of $5,000 per month
for content delivered and the Company shall retain, as its sole and exclusive
property, all revenue derived from domestic broadcast distribution and
pre-approved Internet rights of resulting episodes. The Company shall also
retain 50% of net revenues from international broadcast distribution and
worldwide sales of videocassettes and DVD; Licensors shall retain the other 50%
of such revenues.
In October, 2000 by unanimous written consent of the Board of Directors,
the Company adopted amendments to Section 13 of Article II and to Article III of
the Company's Bylaws in order to more clearly enumerate and define the duties of
the Company's officers.
Also in October, 2000 by unanimous written consent of the Board of
Directors, the Company adopted amendments to its 2000 Equity Incentive
Compensation Plan (the "Plan") in order to conform the Plan with certain
requirements under California law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
NUMBER NAME
- ------ ----
2 Agreement and Plan of Merger effective as of November 22, 1999(1)
3.1 Articles of Incorporation(2)
3.2 Amendment to Articles of Incorporation(2)
3.3 By-laws(2)
3.4 Amendment to Bylaws of Corpas Investments, Inc. by Written Consent
of the Company's Board of Directors*
4.0 Registration Rights Agreement(3)
10.1 Agreement of Purchase and Sale between the Company and Planet
Extreme, Ltd.(4)
10.2 Content Provider and Service Agreement - MDM/A4M(3)
10.3 Web Site Development and Support Agreement(3)
10.4 Consulting Services Agreement between Company and John Clayton(5)
10.5 Stock Option Agreement between Company and John Clayton(5)
10.6 2000 Equity Incentive Compensation Plan(6)
10.7 Office Lease dated February 22, 2000(7)
10.8 Office Lease dated January 22, 2000(7)
10.9 Consulting and Services Agreement between Company and Dr. Bob
Goldman(7)
10.10 Financial Advisory Agreement between Company and D.R.F.W. Group, Inc.(7)
10.11 Consultant Agreement between Company and Columbia Financial
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Group(7)
10.12 Form of Subscription Agreement and Investment Letter, dated as of
February 4, 2000, to be executed between the Company and the
noteholder in connection with 10.5% Redeemable Promissory Note
Offering(8)
10.13 Form of 10.5% Redeemable Promissory Note(8)
10.14 Form of Common Stock Purchase Warrant accompanying 10.5% Redeemable
Promissory Note(8)
10.15 Financial Advisory Agreement between Company and South Shore
Investments Ltd. Inc.(9)
10.16 Real.com Guide Co-Branded Web Page Agreement between Company and
RealNetworks, Inc.(9)
10.17 Series Agreement between Company and Fox Sports Net(9)
10.18 Financial Advisory Agreement between Company and Wall Street
Financing Consultants, Inc.(9)
10.19 Financial Advisory Agreement between Company and NLC, Inc.*
10.20 Form of Subscription Agreement executed between the Company and the
shareholder in connection with each of Common Stock Offering of 300,000
shares at $0.75 per share and Common Stock Offering of 3,005,000 shares
at $0.50 per share*
10.21 Settlement Agreement and Release between Company and each of D.R.F.W.
Group, Inc., South Shore Investments Ltd., Inc. and John Thristino*
10.22 Business Consulting Agreement between Company and Windsor Partners, Inc.*
10.23 Fee and Non-Exclusive Placement Agreement between Company and Chicago
Investment Group, Inc.*
10.24 Content License and Promotion Agreement between Company and RealNetworks,
Inc.*
10.25 Agreement between Company and each of Yoshimoto Kogya Ltd. and Nux, Inc.*
10.26 Amendments to 2000 Equity Incentive Compensation Plan of Corpas
Investments, Inc. by Written Consent of the Company's Board of Directors*
27.1 Financial Data Schedule* (for SEC use only)
- ------------------------------
*Filed herewith
(1) Incorporated by reference and filed as an exhibit to the Company's
Current Report on Form 8-K dated November 24, 1999.
(2) Incorporated by reference and filed as an exhibit to the Company's
Registration Statement on Form 10QSB, filed on May 18, 1999.
(3) Incorporated by reference and filed as an exhibit to the Company's
Annual Report on Form 10KSB, filed on April 14, 2000.
(4) Incorporated by reference and filed as an exhibit to the Company's
Current Report on Form 8-K filed March 21, 2000.
(5) Incorporated by reference and filed as an exhibit to the Company's Form
S-8 Registration Statement (No. 333- 36862).
(6) Incorporated by reference to the Company's definitive proxy statement
dated March 30, 2000 relating to a special shareholders' meeting held
on April 21, 2000.
(7) Incorporated by reference to the Company's Quarterly Report on
Form10-QSB, filed on May 22, 2000.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-QSBA for the period ended March 30, 2000, filed on June 14, 2000.
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(9) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB, filed on August 14, 2000.
(b) REPORTS ON FORM 8-K
(i) The Company filed a Current Report on Form 8-K on March 21, 2000 to
report the acquisition by the Company of Planet Extreme, Ltd.
(ii) 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.
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: November 13, 2000
/s/ Molly A. Miles
-------------------------------------
Molly A. Miles,
Chief Executive Officer
(Principal Executive Officer)
/s/ Carl Allison
-------------------------------------
Carl Allison,
Senior Vice President of Finance
(Principal Financial Officer)
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EXHIBIT INDEX
NUMBER NAME
- ------ ----
3.4 Amendment to Bylaws of Corpas Investments, Inc. by Written Consent
of the Company's Board of Directors*
10.19 Financial Advisory Agreement between Company and NLC, Inc.*
10.20 Form of Subscription Agreement executed between the Company and the
shareholder in connection with each of Common Stock Offering of 300,000
shares at $0.75 per share and Common Stock Offering of 3,005,000 shares
at $0.50 per share*
10.21 Settlement Agreement and Release between Company and each of D.R.F.W.
Group, Inc., South Shore Investments Ltd., Inc. and John Thristino*
10.22 Business Consulting Agreement between Company and Windsor Partners, Inc.*
10.23 Fee and Non-Exclusive Placement Agreement between Company and Chicago
Investment Group, Inc.*
10.24 Content License and Promotion Agreement between Company and RealNetworks,
Inc.*
10.25 Agreement between Company and each of Yoshimoto Kogya Ltd. and Nux, Inc.*
10.26 Amendments to 2000 Equity Incentive Compensation Plan of Corpas
Investments, Inc. by Written Consent of the Company's Board of Directors*
27.1 Financial Data Schedule* (for SEC use only)
- ------------------------------
* Filed Herewith
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