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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission file number 0-27343
INFOCAST CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 84-1460887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 E. Ft. Lowell, Suite 106, Tucson, AZ 85719
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 416-867-1681
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Former Name, Former Address and Former Fiscal Year, if changed since last Report
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 /X/ Yes / / No
The number of shares outstanding of each of the issuer's classes of common stock
at June 30, 2001:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $0.001 par value 48,037,941
1
INFOCAST CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements. 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds. 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K. 32
Signatures 32
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED BALANCE SHEETS
[U.S. dollars, U.S. GAAP]
Unaudited
(See Basis of Presentation - Note 1)
As of As of
June 30, 2001 March 31, 2001
$ $
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 341,870 2,607,267
Accounts receivable 189,189 172,254
Prepaid expenses and other 112,213 99,049
- --------------------------------------------------------------------------------------------------------------
Total current assets 643,272 2,878,570
- --------------------------------------------------------------------------------------------------------------
Convertible debt issuance costs, net 1,062,329 1,132,159
Capital assets, net 682,407 1,836,132
Distribution and licensing rights, net 2,330,417 2,479,167
Restricted cash (Note 5) 42,581
- --------------------------------------------------------------------------------------------------------------
4,761,006 8,326,028
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LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
Current
Accounts payable and accrued liabilities 2,837,842 4,027,658
Accrued restructuring charges (Note 6) 1,752,895 1,950,458
Current portion of obligations under capital leases -- 346,807
Deferred tenant inducement 6,841 7,250
Due to related parties 693,000 693,000
Convertible debentures- Current [note 4] 500,000 --
Discount on Convertible Debt [note 4] (458,333) --
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 5,332,245 7,025,173
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Long-term
Convertible debentures-Long Term [note 4] 6,610,000 6,960,000
Obligations under capital leases -- 975,047
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Total long-term liabilities 6,610,000 7,935,047
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Total liabilities 11,942,245 14,960,220
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Stockholders' Equity/(Deficiency)
Common stock
[100,000,000 authorized and 48,037,941 issued and outstanding at June 30, 2001,
47,052,059 at March 31, 2001) 46,357 45,551
Additional paid-in capital 127,556,763 124,302,960
Deferred compensation (2,494,784) (1,233,753)
Unamortized Beneficial Conversion Feature -- --
Warrants 3,959,436 4,010,825
Accumulated other comprehensive income (loss) 167,688 163,130
Accumulated development stage deficit (136,416,879) (133,922,905)
- --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity/(Deficiency) (7,181,238) (6,634,192)
- --------------------------------------------------------------------------------------------------------------
4,761,006 8,326,028
==============================================================================================================
- -
See accompanying notes
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
[U.S. dollars, U.S. GAAP]
Unaudited
Cumulative
Three months Three months from
ended ended inception to
June 30, June 30, June 30,
2001 2000 2001
$ $ $
Revenue
Subscriptions -- -- 963,831
Consulting -- 72,625 688,912
Hosting -- 43,047 422,821
Miscellaneous 34,313 21,465 402,987
Distance Learning 5,184 -- 78,405
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39,497 137,137 2,556,956
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Expenses
General, administrative and selling, excluding stock option compensation 1,389,204 2,161,796 23,825,795
Stock option compensation [note 3] 668,703 743,354 17,478,432
Research and development, excluding stock option compensation 55,732 119,132 6,746,571
Write-down of Virtual Call Centre technology 20,898 1,637,465
Amortization 218,580 1,311,778 15,141,386
Depreciation 33,395 205,766 1,548,119
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2,386,512 4,541,826 66,377,768
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Loss from operations before restructuring and impairment charges: (2,347,015) (4,404,689) (63,820,813)
Restructuring and impairment charges -- -- 95,897,680
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Loss from operations before the following: (2,347,015) (4,404,689) (159,718,492)
Interest income 10,067 54,328 240,979
Interest and loan fees (157,025) (1,599,609) (4,825,634)
Loss on sale of marketable equity investment -- -- (2,626,297)
Equity in loss of joint venture -- -- (164,736)
- -----------------------------------------------------------------------------------------------------------------------
Loss before income taxes and extraordinary item (2,493,973) (5,949,970) (167,094,180)
Deferred income taxes -- 347,500 30,886,000
- -----------------------------------------------------------------------------------------------------------------------
Loss before extraordinary item (2,493,973) (5,602,470) (136,208,180)
Loss on redemption of convertible debentures -- -- (208,698)
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Net loss for the period (2,493,973) (5,602,470) (136,416,878)
Unrealized loss on short-term equity investment -- (2,275,000) --
Translation adjustment 4,558 (76,248) 167,688
=======================================================================================================================
Comprehensive loss for the period (2,489,415) (7,953,718) (136,249,190)
Weighted average number of shares outstanding 47,060,491 24,571,333 18,030,887
=======================================================================================================================
Basic and diluted loss per share (0.05) (0.32) (7.56)
=======================================================================================================================
Stock Option Compensation related to:
General, administrative & selling 668,703 743,354 12,916,182
Research & Development -- -- 4,562,250
=======================================================================================================================
See accompanying notes
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOW
[U.S. dollars, U.S. GAAP]
Unaudited
Three months Three months Cumulative
ended ended inception to
June 30, June 30, June 30,
2001 2000 2001
---------------------------------------------
Cash provided by (used in)
OPERATING ACTIVITIES
Net loss for the period (2,493,973) (5,602,470) (136,416,878)
Add (deduct) items not affecting cash
Stock option compensation 677,276 743,354 17,487,005
Common stock issued for services -- -- 884,372
Warrants issued for services 39,093 129,100 2,039,610
Common stock issued to Applied Courseware Technology (A.C.T.) Inc. -- -- 1,337,500
Write-off in-process research & development -- -- 19,000
Write-off Applied Courseware Technology ( ACT) Inc. Loan -- -- 98,685
Non-cash interest expense 157,025 1,455,933 4,207,481
Equity in loss of joint venture -- 164,736
Deferred income taxes -- (347,500) (30,886,000)
Loss on sale of marketable equity investment -- -- 2,626,297
Loss on sale of joint venture (digital outcry) -- -- 84,581
Loss from write down of capital assets 20,898 -- 2,428,553
Loss from write down of Homebase goodwill -- -- 3,935,435
Loss from write down of i360 goodwill -- -- 20,950,561
Loss from write down of intellectual property -- -- 67,630,708
Loss on redemption of debenture -- -- 208,698
Accrued interest expense not paid upon conversion of debt -- -- 8,553
Amortization 218,580 1,311,778 15,141,386
Depreciation 33,395 205,766 1,548,119
- -----------------------------------------------------------------------------------------------------------------------------
(1,347,707) (2,104,039) (26,501,600)
Changes in non-cash working capital balances
Accounts receivable (16,935) 2,089 307,359
Prepaid expenses and other (13,164) 1,584 396,647
Bank Overdraft -- -- 37,950
Accounts payable and accrued liabilities (1,305,174) (657,576) 834,783
Accrued restructuring (197,563) -- 1,752,895
Deferred Revenue -- -- (85,111)
Due from Infocast prior to acquistion -- -- (25,020)
Deferred tenant inducement (409) -- 6,841
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Cash used in operating activities (2,880,952) (2,757,942) (23,275,256)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (222,422) (286,371) (3,398,064)
Distribution and licensing rights -- -- (2,975,000)
Due from Homebase Work Solutions Ltd. -- -- (99,529)
Due from i360 Inc. -- (145,137) --
Acquisition of Homebase Work Solutions Ltd. -- -- 50,667
Acquisition cost -i360 -- (255,235) (480,864)
Investment in joint venture -- (84,699) (256,301)
Due from Applied Courseware Technology (A.C.T.) Inc. -- -- (139,299)
Cash advance to i360 [the acquired entity] prior to acquisition -- -- (1,131,682)
Restricted Cash (42,581) -- (42,581)
Cash Proceed from sale of marketable equity investment -- -- 1,561,203
Acquisition of InfoCast Corporation -- -- 87
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Cash used in investing activities (265,003) (771,442) (6,911,363)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entiry] -- -- 250,000
Increase (decrease) in due to related parties -- -- 623,604
Net increase (repayment) of capital lease obligation -- (111,167) (796,918)
Receipt of short-term unsecured loan -- -- 470,000
Payment of short-term unsecured loan -- -- (470,000)
Cash advance from InfoCast [the acquired entity] prior to acquisition -- -- 146,900
Cash Proceeds from convertible note - short term 500,000 -- --
Cash Proceed from convertible debenture -- 3,133,602 7,984,148
Redemption of convertible debentrure -- -- (902,618)
Cash Proceed from issuance of share capital , net 376,000 -- 22,566,086
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Cash provided by financing activities 876,000 3,022,435 29,871,202
- -----------------------------------------------------------------------------------------------------------------------------
Net increase(decrease) in cash during the period (2,269,955) (506,949) 184,583
Effects of foreign exchange rates change on cash balances 4,558 (76,248) 157,287
Cash & cash equivalents, beginning of period 2,607,267 3,637,931 --
- -----------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents, end of period 341,870 3,054,734 341,870
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Cashflow information
Interest & lending fees paid during the period -- 88,696 618,153
Capital Lease Obligation assumed durign the period -- 31,028 2,118,781
Fair value of acquisitions acquired through
share issuances during the period -- -- 51,790,131
=============================================================================================================================
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
Consolidated Statements of Changes in Stockholders' Equity/(Deficiency)
[U.S. dollars, U.S. GAAP]
Unaudited
Common Stock Additional
Common Issued and Paid-in
Shares outstanding Capital
# $ $
------------------------------------------
Outstanding as of March 31, 2001 47,052,059 45,551 124,302,960
Common shares issued for cash 780,000 780 389,220
Common shares issued upon conversion of debenture 205,883 206 349,794
Commission on private placements -- -- (14,000)
Granting of stock options -- -- 2,051,000
Issuance of warrants for consulting services -- -- --
Cancellation of stock options
and warrants issued in previous
periods -- -- (625)
Adjustments resulting from revaluation
of warrants issued in current period -- -- --
Adjustments resulting from revaluation
of warrants issued in previous periods -- -- (21,586)
Amortization of deferred compensation -- -- --
Beneficial conversion feature on issuane of convertible debenture -- -- 500,000
Translation adjustment -- -- --
Net loss for the period -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 2001 48,037,942 46,637 127,556,763
========================================================================================================================
Accum. other
Deferred Comprehensive
Compensation Warrants loss
$ $ $
---------------------------------------------------
Outstanding as of March 31, 2001 (1,233,753) 4,010,825 163,130
Common shares issued for cash -- -- --
Common shares issued upon conversion of debenture -- -- --
Commission on private placements -- -- --
Granting of stock options (1,517,281) -- --
Issuance of warrants for consulting services (358,900) 360,000 --
Cancellation of stock options
and warrants issued in previous
periods 201,818 (205,139) --
Adjustments resulting from revaluation
of warrants issued in current period 26,169 (26,250) --
Adjustments resulting from revaluation
of warrants issued in previous periods 265,482 (180,000) --
Amortization of deferred compensation 121,681 -- --
Beneficial conversion feature on issuane of convertible debenture -- -- --
Translation adjustment -- -- 4,558
Net loss for the period -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 2001 (2,494,784) 3,959,436 167,688
============================================================================================================================
Accumulated Total
development Stockholders'
Stage deficit Equity/(Deficiency)
$ $
-------------------------------------
Outstanding as of March 31, 2001 (133,922,905) (6,634,192)
-- --
Common shares issued for cash -- 390,000
Common shares issued upon conversion of debenture -- 350,000
Commission on private placements -- (14,000)
Granting of stock options -- 533,719
Issuance of warrants for consulting services -- 1,100
Cancellation of stock options
and warrants issued in previous
periods -- (3,946)
Adjustments resulting from revaluation
of warrants issued in current period -- (81)
Adjustments resulting from revaluation -- -
of warrants issued in previous periods -- 63,898
Amortization of deferred compensation -- 121,681
Beneficial conversion feature on issuane of convertible debenture -- 500,000
Translation adjustment -- 4,558
Net loss for the period (2,493,973) (2,493,973)
- ----------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 2001 (136,416,879) (7,181,238)
==========================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
1. BASIS OF ACCOUNTING
Going Concern
The financial statements of InfoCast Corporation (the "Company") have been
presented on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business.
The Company has incurred losses since its incorporation, had a working capital
deficiency of $5,104,724 as of June 30, 2001 and a stockholders' deficiency of
$7,181,238 as of June 30, 2001. As of August 20, 2001, the Company continues to
have a significant working capital deficiency. In addition, the Company has not
yet earned any revenue from its continuing Contact (as defined herein) business
and has only earned marginal revenue from its e-Learning (as defined herein)
business. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
The ability of the Company to continue as a going concern is uncertain and is
dependent on a number of factors including the Company's ability to arrange
financing in addition to the financing arranged through to August 22, 2001 (Note
7), the Company's ability to manage and defer certain of its liabilities and the
continued support of its management team. In the event that the Company is
unable to raise financing in addition to the financing raised through August 22,
2001, the Company will likely be unable to continue operations beyond September
2001. Management is currently negotiating and evaluating various financing
alternatives, including equity and convertible debenture private placements. In
addition, the Company has signed distribution agreements that are expected to
accelerate the Company's revenue base for its Contact and e-Learning businesses.
Subsequent to the quarter ended December 31, 2000, management revised its
development plans and undertook measures to substantially reduce its ongoing
operating budget, including the decision to wind-down its Community division and
divest or wind-down its Hosting division. As of March 31, 2001, the Company had
closed down its Community division and as at April 26, 2001, the Company sold
its Hosting division assets. In the event that additional financing is not
received by the end of September 2001, the Company will likely be unable to
continue operations beyond September 2001. The Company will continue to evaluate
its cost structure and adjust its organization to reflect its changing business
environment. The outcome of these matters cannot be predicted at this time.
These consolidated financial statements do not include adjustments to the
carrying values and classification of assets and liabilities should the Company
be unable to continue as a going concern.
Interim Financial Statements
These unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, these unaudited interim
consolidated financial statements do not include all the financial information
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals and write-downs of impaired assets,
considered necessary for fair presentation have been included. The operating
results for the three-month period ended June 30, 2001 are not necessarily
indicative of the operating results that will occur for the year ended March 31,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the fiscal year ended March 31, 2001.
The balance sheet at March 31, 2001 has been derived from the audited financial
statements at that date but does not include all of the information and foot
notes required by generally accepted accounting principles for complete
financial statements.
Nature of Operations
The Company is a development stage technology company that has developed an
infrastructure to deliver, on a pay per use basis, a solution that enhances
communication by its customers and their employees and/or customers. The first
of two applications included in the solution is a virtual call center solution
known as InfoCast Contact ("Contact"), which provides companies with a complete
contact
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
solution enabling them to provide a high level of customer service. Contact
unifies customer contact options in a single integrated system providing voice,
chat and e-mail functionality. The second application, called InfoCast
e-Learning ("e-Learning"), is a complete electronic learning environment which
increases productivity and drives down education costs by giving corporate and
academic learners access to up-to-the-minute training and certification through
access to e-Learning's web-based portal, which provides access to training and
management resources specific to the call center industry
The Company's primary operational focus as outlined in its revised business plan
still entails significant investment in developing, deploying and marketing
electronic commerce enabling application solutions.
The aggregate future capital requirements to support this investment are
expected to be substantially funded from external resources including issuing
equity and or debt. There can be no assurance that any financing will be
available on terms acceptable to the Company or at all.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarized as follows:
Revenue Recognition
The Company generated revenue from hosting services, subscription services,
consulting services and the sale of computer hardware and e-Learning products.
Revenue from hosting, subscription services and e-Learning services is
recognized when the service is delivered, or over the term of the applicable
hosting services, subscription services or e-Learning contract. Consulting
revenue is recognized at the time such consulting services are rendered. Revenue
generated from the resale of computer hardware and e-Learning products is
recognized upon shipment. Revenues from subscription services and Hosting have
discontinued as a result of the Company's restructuring in the prior fiscal
period.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement on Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and
Hedging Activities in 1998. SFAS No. 133 establishes accouting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company adopted SFAS No. 133 effective
April 1, 2001 for the year ended March 31, 2002. The adoption of SFAS No. 133
has not had an effect on the financial position or results of operations of the
Company.
In June 2001 The Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other in Intangible Assets, effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 is not expected to have an effect on the
Company because other intangible assets will continue to be amortized over their
useful lives.
3. SHARE CAPITAL
Authorized, Issued And Outstanding Common Stock
The Company has 100,000,000 shares of preferred stock authorized at a par value
of $0.001 per share and has 100,000,000 shares of common stock authorized at a
par value of $0.001 per share.
The Company has an obligation to register for resale a substantial number of
shares of Common Stock pursuant to previously granted registration rights. Given
the limited market to date for the Company's common stock, the Company's ability
to register for resale on a timely basis all of the shares of common stock that
the Company is obligated to register pursuant to registration rights may be
restricted.
Private Placement
During February and March 2001 the Company consummated a private placement
financing whereby the Company shares of issued 12,797,682 common stock and
granted warrants to purchase 6,398,841 shares of common stock at an exercise
price of $0.75 per share for an aggregate offering price of $6,398,841 pursuant
to Regulation S of the Securities Act of 1933, as amended.
In accordance with the terms of these private placements, if a registration
statement covering the Registrable Securities (as such term is defined in the
private placement documents) required to be filed by the Company is not declared
effective by the Securities and Exchange Commission on or prior to October 31,
2001 then the Company shall issue to the Purchaser one warrant to purchase .50
shares of common stock for each Unit (as such term is defined in the private
placement documents) purchased in the offering.
During the three months ended June 30, 2001, the Company completed the private
placeemnt of an additional 780,000 units at $0.50 per unit, each unit consisting
of one common share and one warrant. Each warrant is exercisable at $0.55 per
share and expires on in July 2006.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
Basic And Diluted Loss Per Common Share
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. Diluted loss per share is calculated by
adjusting outstanding shares, assuming any dilutive effects of options, warrants
and convertible securities. For all of the periods presented, the effect of
stock options, warrants, and convertible securities were not included, as the
effect would be anti-dilutive. Consequently, there is no difference between the
basic and dilutive net loss per share. The weighted average number of potential
common shares from options, warrants and convertible securities for the
three-month period ended June 30, 2001 was approximately 2,910,478 compared to
approximately 5,269,749 three months ended June 30, 2000.
Stock Options
1998 Stock Option Plan
Pursuant to the Company's 1998 Stock Option Plan as amended on January 29, 1999,
2,250,000 shares of common stock are eligible for grant. As of June 30, 2001,
the Company had 1,550,000 shares of common stock reserved for the exercise of
stock options granted to various individuals involved in the management of the
Company, of which 2,075,000 were originally granted on February 8, 1999 from
which 100,000 were later cancelled during the three months ended June 30, 2001
and 600,000 were cancelled in prior periods and 175,000 of which were granted on
February 1, 2000. As of June 30, 2001, consultants hold 650,000 of the options,
while employees and directors hold 900,000 of the options.
All of the options are exercisable at $1.00 per share and are fully vested.
1999 Stock Option Plan
Pursuant to the 1999 Stock Option Plan an additional 2,000,000 stock options are
eligible for grant. As of June 30, 2001, 1,265,000 of the eligible stock options
were granted to various employees, officers, consultants and advisors pursuant
to the 1999 Stock Option Plan.
On June 14, 2000, the Board of Directors approved the repricing of 1,605,000
stock options previously granted through to February 29, 2000 with original
exercise prices ranging from $7.00 to $8.625 per share to the new exercise price
of $4.00 per share, which resulted in incremental stock option compensation
expense of $63,800 being recorded during the year ended March 31, 2001 in
respect of 110,000 repriced stock options held by consultants and nil in respect
of the 1,495,000 repriced stock options held by employees and directors as the
fair value of the Company's stock closed at $1.13 per share as of March 31,
2001. The repriced stock options will be accounted for as variable options until
they are exercised, forfeited or expired. No additional expense was recorded in
the three months ended June 30, 2001 as of the fair value of the Company's stock
closed at $0.65 on June 30, 2001.
During the three-month period ended June 30, 2001, 330,000 options previously
granted to employees were cancelled.
As at June 30, 2001, 1,130,002 stock options have vested. The remaining balance
will vest on various dates between September 2001 and February 2003, and expire
on various dates between November 2004 and June 2005.
Stock option compensation expense of $13,037 was charged during the three-month
period ended June 30, 2001 in respect of the expensing of deferred compensation
previously recorded in respect of stock options matured for a terminated
officer.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
2000 Stock Option Plan
On June 14, 2000 and August 14, 2000 respectively, the Board of Directors and
the stockholders of the Company approved the 2000 Stock Option Plan under which
an additional 2,000,000 stock options are eligible for grant. As of June 30,
2001, the Company had outstanding stock options to various employees, officers,
consultants and advisors pursuant to the 2000 Stock Option plan as follows:
Option Price
Grant Date Options per share Expiry Date
# $
November 8, 2000 50,000 2.00 June 13, 2005
January 25, 2001 136,670 1.00 January 24, 2006
April 3, 2001 500,000 1.00 April 1, 2006
April 3, 2001 642,000 1.00 April 2, 2006
May 17, 2001 250,000 1.00 May 17, 2006
June 27, 2001 237,500 1.00 June 27, 2006
---------
Total 1,816,170
---------
The 50,000 options exercisable at $2.00 vested on the grant date of November 8,
2000. The 136,670 options exercisable at $1.00 vested on the grant date of
January 25, 2001. The 500,000 options exercisable at $1.00 vest as follows:
200,000 at April 1, 2001, 150,000 at April 1, 2002 and 150,000 on April 1, 2003.
The 642,000 $1.00 options vest as follows: 213,990 at April 2, 2001, 214,004 at
April 2, 2002 and 214,006 on April 2, 2003. The May 17, 2001 options exercisable
at $1.00 vest as follows: 83,333 vested on the grant date of May 17, 2001,
83,333 at May 17, 2002 83,334 on May 17, 2003. The June 27, 2001 options vest as
follows: 79,163 vested on the grant date of June 27, 2001, 79,167 at June 27,
2002 and 79,170 on June 27, 2003.
Other Stock Options
On June 1, 1999, the directors of the Company approved the grant of 750,000
stock options outside of the 1999 Stock Option Plan to an individual who became
an officer of the Company on September 4, 1999. The stock options were
originally exercisable at a price of $7.00 per share, expire five years from the
date of grant and vest as follows: 250,000 on September 4, 1999 upon the
acceptance by the individual of formal employment with the Company, 250,000 on
September 4, 2000 and 250,000 on September 4, 2001. These outstanding options
have been valued at $2,437,500 of which $1,523,437, and $1,523,437 has been
recognized as stock option compensation expense during the years ended March 31,
2000, and March 31, 2001. The individual was terminated during the three months
ended June 30, 2001 at which time the options vested immediately and the
remaining $67,894 was expensed. On June 14, 2000, the Board of Directors
approved the repricing of these stock options to the new exercise price of $4.00
per share, which resulted in incremental stock option compensation expense of
nil because the fair value of the Company's stock closed at $1.13 per share as
of March 31, 2001. These repriced stock options will be accounted for as
variable options until they are exercised, forfeited or expired.
On October 18, 1999, the directors of the Company approved the grant of 60,000
stock options outside of the 1999 Stock Option Plan to an individual who was to
provide financial and investor relations consulting services to the Company. The
agreement with this individual was terminated in May 2000 resulting in the
cancellation of unvested options to purchase 30,000 shares of common stock
previously granted. Also, on June 14, 2000 the remaining 30,000 stock options
were repriced from $8.25 per share to $4.00 per share resulting in incremental
stock option compensation expense of $17,400 during the year ended March 31,
2001 The remaining 30,000 stock options are fully vested and expire two years
from the date of grant.
Effective April 1, 2001, the Company entered into an agreement with Team CEO
Corporation ("Team CEO") to develop and implement sales infrastructure and
distribution channels, including the associated practices and processes, to
maximize the Company's revenue opportunities. Under the terms of the agreement,
which ends April 1, 2003, Team CEO receives a monthly fee of $50,000 and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
commissions on the Company's earned revenue and will be entitled to a finder's
fee in the event of the hiring of professional employees introduced by Team CEO.
Under the terms of the agreement, the three principals of Team CEO were each
granted on June 27, 2001 options to purchase 1.2 million common shares of the
Company at an option price of $1.00 per share. The options are exercisable at
$1.00 per share, expire 5 years from the date of grant and vest as follows:
Vesting Options
Date #
June 20, 2001 600,000
June 30, 2001 300,000
September 30, 2001 300,000
December 31, 2001 300,000
March 31, 2002 300,000
June 30, 2002 450,000
September 30, 2002 450,000
December 31, 2002 450,000
March 31, 2003 450,000
---------
Total 3,600,000
---------
These outstanding options have been valued at $2,016,000 in the accounts based
on an expected volatility factor of 1.444, an expected dividend rate of 0%, an
expected life of three years, a risk-free interest rate of 4.13%, and the June
27, 2001 closing market price of $0.73 per share of common stock of which
$516,427 has been charged to stock option compensation expense and of which the
balance of $1,499,573 is included in deferred compensation. The unvested options
will be revalued each reporting period until the vesting date.
On June 27, 2001 the directors of the Company approved the grant of an
additional 750,000 options for a total of 1,500,000 stock options, (including
750,000 options granted in the prior year) outside of the 2000 Stock Option Plan
to an individual who became an officer of the Company on February 4, 2001. The
stock options are exercisable at a price of $1.00 per share, and vest as
follows: 500,000 on March 5, 2001, 500,000 on January 01, 2002, and 500,000 and
January 01, 2003. The 750,000 stock options granted on March 15 are valued at
$246,075 of which $88,250 and $38,178 has been recognized as stock option
compensations expense during the year ended March 31, 2001, and the three months
ended June 30, 2001 respectively. The options granted on June 27, 2001 have been
valued at nil because the fair value of the Company's stock closed at $0.65 per
share as of June 30, 2001.
A summary of the Company's stock option activity, including stock options
granted to the former employees and directors of i360 upon the acquisition of
i360, is as follows:
Weighted Average Weighted Average
No. Of Options Exercise Price
Outstanding as of March 31, 2001 5,540,771 2.70
Granted 6,054,500 1.00
Exercised
Cancelled - not vested 374,326 3.60
Cancelled - Vested 464,674 3.19
Outstanding as of June 30, 2001 10,756,271 1.69
- -----------------------------------------------------------------------------------
Exercisable as of June 30,2001 5,198,160 1.97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
If the Company had adopted FASB Statement No. 123 ("FASB 123") in respect of
stock options granted to its employees and directors, the Company would have
recorded a higher stock option compensation expense for three month period ended
June 30, 2001 of $511,514 in respect of the amortization of the estimated value
of the Company's stock options to employees over the vesting periods of the
options, which results in a pro-forma net loss of $3,005,487 and a pro-forma
basic and diluted loss per share of $1.03 in respect of the three month period
ended June 30, 2001.
The Company assumed the following expected dividend rates, expected lives,
risk-free interest rate and expected volatility factors in respect of the
valuation of stock options granted to employees and directors in accordance with
FASB 123:
Weighted
Average
Expected dividend rate 0 %
Expected life 2 yrs
Risk-free- interest rate 3.875
Expected Volatility 1.444
Other Warrants
In March 2001, the Company entered into an agreement with VIGIC Services, LLC
("VIGIC"), a GTCR Golder Rauner, LLC company, to render certain consultant and
advisory services in connection with the Company's efforts to develop operating
strategies, pursue possible acquisitions or other strategic transactions, and
raise financing to March 31, 2004. VIGIC will be paid a monthly retainer of
$16,666. In addition, VIGIC will be entitled to a commission in the event of a
financing with an investor introduced by VIGIC. Pursuant to the agreement, the
Company issued warrants to purchase 750,000 of common stock at $1.00. Of these
warrants to purchase the common stock, 375,000 vested immediately and the
remaining balance of 375,000 vest on March 15, 2002. These warrants have been
valued at $510,000 in the accounts based on a volatility factor of 1.444, an
expected dividend rate of 0% and a risk-free interest rate of 3.88% of which
$16,369 and $38,074 has been recognized as general and administrative expense
during the year ended March 31, 2001, and the three months ended June 30, 2001
respectively. $455,557 is included in deferred compensation. The unvested half
of the warrants, which have been valued at $0.41 each at June 30, 2001, will be
revalued each reporting period until the vesting date. The value of the warrants
will be amortized over the 3-year term of the agreement.
On June 27, 2001 the Company granted an additional 750,000 warrants (for a total
of 1,500,00 warrants) exercisable at $1.00 per share and which expire on March
14, 2006. Of the warrants granted on June 27, 2001, 375,000 vested immediately
and the remaining 375,000 vest on March 15, 2002. These warrants are valued at
$333,750 based on an expected volatility factor of 1.444, an expected dividend
rate of 0%, an expected life of two years, a risk-free interest rate of 3.88%,
of which $1,021 has been recognized as general and administrative expense during
the three months ended June 30, 2001 and of which the balance of $332,730 is
included in deferred compensation. The unvested half of the warrants, which have
been valued at $0.41 each at June 30, 2001, will be revalued each reporting
period until the vesting date. The value of the warrants will be amortized over
the 3-year term of the agreement.
In addition to the above noted warrants, the warrants issued with the
convertible debt (Note 4), and the Sun warrants (Note 5), the following warrants
are outstanding in respect of services provided to the Company, private
placements completed by the Company, lawsuit settled by the Company, or
acquisitions made by the Company in prior periods.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
Exercise Price
Warrants per share Expiry Date
October 6, 1999 12,500 8.75 October 5, 2001
1999 966,667 7.50 March 31, 2003
January 1, 2000 12,500 7.62 January 1, 2002
February 11, 2000 56,000 5.00 February 10, 2002
April 7, 2000 200,000 6.50 April 7, 2005
June 14, 2000 500,000 4.00 June 25, 2005
August 15, 2000 2,031,500 0.33 January 10, 2010
August 15, 2000 36,375 3.18 May 2010 to August 2010
November 7, 2000 100,000 2.00 November 6, 2003
November 1, 2000 475,800 2.50 November 1, 2002
November, 2000 17,500 2.00 November 6, 2003
December 12, 2000 75,000 2.00 November 6, 2003
February 8, 2001 4,500,885 0.75 January 31, 2004
March 15, 2001 262,000 0.33 March 08, 2004
March 23, 2001 1,897,956 0.75 January 31, 2004
April thru June, 2001 390,000 0.55 January 31, 2004
----------
Total 11,534,683
----------
4. CONVERTIBLE DEBENTURES
On June 21, 2001, the Company issued a $500,000 Secured Convertible Promissory
Note ("the Note") bearing interest at 10% per annum. The principal amount and
the accrued and unpaid interest shall be due and payable in one lump sum on
October 18, 2001. The Note is convertible into units at $0.50 per share, each
unit is consisting of one common share and one-half of one warrant exercisable
at $0.80 per share. The Company also granted warrants to purchase 500,000 shares
of the Company's stock to the promissory note holder for no consideration. These
warrants have an exercise price of $1.00 per share and expire on June 15, 2005.
The intrinsic value of the beneficial conversion feature has been classified as
discount on convertible debt and has been valued at $500,000 of which $41,667
has been included in interest expense during the three months ended June 30,
2001. The remaining discount of convertible debentures will be expensed over the
four-month term of the note. The beneficial conversion feature in respect of
prior convertible debt issuances was expensed immediately in the period. This
change in accounting policy is the result of the adoption of EITF 00-27. The
holder of the note may convert their options on or after an S-3 Registration
Statement becomes effective. The principal and accrued interest shall be
automatically convertible if the Company raises gross proceeds in excess of
$2,000,000 exclusive of any monies raised by the holder of the note. The Company
may not, without prior written consent, prepay the principal balance plus any
interest accrued to date. The note is collateralized by certain of the Company's
account's receivable. In the event that the Company defaults on the interest
payments, the debenture becomes due within 30 days at the option of the
debenture holder. The holder of this Note may, at the holder's option, declare
this Note mature and all monies will be due and payable, because the Company has
not filed a registration statement on form S-3 with the Securities and Exchange
Commission.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
Conversion of Series I Debenture
During March through June of 2000, the Company issued $6,960,000 of Series 1
convertible debentures of which the entire amount was outstanding as of March
31, 2001. The initial conversion price shall be reduced from $6.00 to $5.70
because the Company did not file a registration statement.
During the three months ended June 30, 2001, $350,000 of the Series 1
convertible debentures, issued in prior fiscal periods, was converted into
205,882 shares of the Company's common stock at an adjusted conversion price of
$1.70 per share. The Company lowered the price from $5.70 per share in
consideration for the investor agreeing to invest $350,000 in units of the
Company in March 2001. As a result of this conversion, the Company credited the
$350,000 principal amount plus interest owing of nil, to common stock and
additional paid-in-capital.
5. COMMITMENTS AND CONTINGENCIES
[a] Leases
In addition to the lease commitments disclosed in the note 9 to the March 31,
2001 consolidated financial statements, the Company entered into two new leases
during the three months ended June 30, 2001 as follows:
On May 15, 2001, the Company entered into a lease agreement to occupy
approximately 4,881 square feet of office space in Tucson, Arizona. The lease
term is effective from July 15, 2001 to July 15, 2004. The total rent expense is
$92,739, $96,449, and $104,486 per year for the periods from July 1, 2001 to
June 30 2002, July1, 2002 to June 30 2003, and July 1 2003 to July 15 2004,
respectively, excluding operating costs.
On May 31, 2001, the Company entered into a lease agreement to sublease
approximately 10,483 square feet of office space in Bannockburn, Illinois. The
total rent expense is $196,411 for the period from June 1, 2001 to May 31, 2002
and $85,174 for the period from June 1, 2002 to October 2002. The lease term is
effective June 5, 2001 and shall expire on October 30, 2002.
[b] Agreement with Sun Microsystems Inc.
On May 4, 2001, the Company entered into a Termination Agreement with Sun
Microsystems Inc. ("Sun") to (i) cancel a $7.3 million lease financing line,
(ii) cancel 288,928 unexercisable warrants related to $5.3 million Lease
financing credits not approved at May 4, 2001, (iii) cancel the Company's $20
million purchase obligation, and (iv) release Sun from any obligation to further
investment in the Company. The initial 109,029 warrants remain outstanding.
These warrants are exercisable at a price of $3.67 per share and expire on
September 14, 2005.
[c] Alleged Wrongful Dismissal And Negligent Misrepresentation
In October 2000, a former employee of the Company filed a legal action against
the Company and certain of its directors and officers alleging wrongful
dismissal and negligent misrepresentation. The claimant ("Plaintiff") is seeking
wrongful dismissal damages of Cdn$50,000.00 (approximately US$32,000 at June 30,
2001), damages for "loss of opportunity" of Cdn$1,000,000.00 (approximately
US$641,500 at June 30, 2001), punitive damages of Cdn$50,000.00 (approximately
US$ 32,000 at June 30, 2001), unspecified "special damages", together with
interest and costs. The Plaintiff's employment was terminated on July 28, 2000
and Plaintiff seeks six months' severance, which is included in the amount
claimed above. The Company has not yet prepared a statement of defense.
Management believes that it has a valid defense to the claim and intends to
defend it vigorously. In addition, management believes that the results of this
matter will not have a material adverse impact on the Company, although an
unfavorable decision could have a material adverse affect on the Company's
business, financial condition and results of operation. No provision has been
made in the accounts in respect of this claim.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
[d] Alleged Advisory Services
On February 1, 2001, the Company received a demand for payment from an
investment advisor in the amount of approximately $900,000 regarding fees in
connection with alleged advisory services performed in connection with the
acquisition of i360 in 2000. The Company does not agree that any fee is owed in
connection with these alleged advisory services and intends to contest
rigorously such request for payment. No provision has been made in the accounts
in respect of this request.
While the Company believes that this matter will not have a material adverse
effect on its financial position, protracted litigation or an unfavorable
decision could materially affect the Company's operations and financial
condition through the consumption of management time and utilization of scarce
financial resources.
[e] Agreement with a supplier
As at March 31, 2001, the Company owed approximately $720,000 to supplier of
telecommunications services to its Community division, which was closed in
February 2001, pursuant to a services agreement dated December 28, 2000. On May
15, 2001, the supplier and the Company terminated the agreement and agreed to
settle all financial matters, including the $720,000 payable as at March 31,
2001 and a cancellation fee, conditional on the payment of $450,000 in various
installments prior to September 2001. The Company paid $50,000 during May 2001.
The Company renegotiated the payment terms, pursuant to an agreement dated July
9, 2001, whereby the Company paid $100,000 immediately, $100,000 was to be paid
on July 31, 2001, $100,000 was to be paid on August 15, 2001 and $150,000 to be
paid on August 31, 2001. As of August 22, 2001, the Company has not paid the
installments due on July 31, 2001 and August 15, 2001 and as a result the
settlement became void and the Company may be liable for the cancellation fee if
the Company is unable to renegotiate a settlement.
As at June 30, 2001, the Company recorded a liability of $671,221.
[f] Restricted Cash
The Company has issued a letter of credit for approximately $42,000 to a
financing company in respect of an agreement to lease an office telephone
system. The letter of credit is secured by a term deposit, the withdrawal of
which is restricted until the lease expires in November 2002.
6. RESTRUCTURING
In March 2001, the Company recorded a restructuring accrual of approximately
$1,900,000 for severance costs and redundant lease costs. During the quarter
ended June 30, 2001, approximately $159,000 was paid for severance expenses and
no additional amounts were charged to the accrual. All of the accrued
restructuring charges during the three months ended June 30, 2001 related to
accrued severance charges.
On April 25, 2001, the Company sold the operating assets of its wholly owned
subsidiary, HomeBase Works Solutions ("HomeBase") in consideration for the buyer
assuming certain liabilities of HomeBase, including the assignment of the leases
for the Sun equipment in its Calgary, Alberta facility (which had a net value of
$1,320,760 at March 31, 2001), and certain specific liabilities totaling $80,500
(Cdn$124,769). The Company is in the process of winding down the Homebase
non-operating assets. Subsequent to the sale of the operating assets, the buyer
has ceased operations and has filed for bankruptcy protection. Other than the
assignment of the leases for the Sun equipment, the other liabilities including
the specific liabilities of $80,500 and the lease for the office facility in
Calgary had not been assigned to the buyer and reverted back to the Company. The
lease for the office facility expires on August 31, 2005. The Company has
defaulted on this lease, however, due to its location, is the Company expects
that this facility will be re-leased by the Landlord without difficulty.
Therefore, the Company has not accrued the liability for the remainder of the
term of the lease. The capital lease obligation, which was part of this
transaction, will not revert back to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
(U.S. dollars except where otherwise noted, U.S. GAAP)
(Unaudited)
7. SUBSEQUENT EVENTS
Private Placement
From July 1 to August 22, 2001 the Company consummated a series of private
placement financing for gross proceeds of $1,184,000, whereby the Company issued
2,368,000 common shares and granted warrants to purchase 2,368,000 common shares
at an exercise price of $0.55 per share for an aggregate offering price of $0.50
per unit pursuant to Regulation D and S of the Securities Act of 1933, as
amended. The warrants vested on issuance and expire on July 31, 2006. The
Company paid commissions of $96,000 in respect of this private placement.
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
This quarterly report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1934, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this report will prove to be
accurate. Factors that could cause actual results to differ from the results
discussed in the forward-looking statements include, but are not limited to,
competition, product acceptance, changing technology and the availability of
financing. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
The consolidated financial statements of the Company are the continuing
financial statements of Virtual Performance Systems, Inc. ("Virtual Performance
Systems"), a development stage company and an Ontario corporation incorporated
on July 29, 1997. Virtual Performance Systems had a 100% interest in Cheltenham
Technologies Corporation ("Cheltenham Technologies"), an Ontario corporation and
Cheltenham Interactive Corporation ("Cheltenham Interactive"), an inactive
Ontario corporation which in turn had a 100% interest in Cheltenham Technologies
(Bermuda) Corporation ("Cheltenham Bermuda"), a Barbados corporation that owns
certain intellectual property. On January 29, 1999, Virtual Performance Systems
acquired the net assets of the Company (formerly known as Grant Reserve
Corporation); a United States non-operating company traded on the NASDAQ OTC
Bulletin Board, which had a 100% interest in InfoCast Canada Corporation
("InfoCast Canada"). After the acquisition, the accounting entity continued
under the name of InfoCast Corporation. On May 13, 1999, InfoCast Canada
acquired a 100% interest in HomeBase. Virtual Performance Systems, Cheltenham
Interactive and Cheltenham Technologies were merged into InfoCast Canada on
March 31, 2000. On August 15, 2000, InfoCast acquired a 100% interest in i360
Inc. ("i360") at which time i360 merged with and into InfoCast Corporation and
became the Community division of InfoCast Corporation. InfoCast Corporation,
InfoCast Canada, HomeBase and i360 are collectively referred to in this section
as the "Company".
Overview
We are a development stage technology company that has developed an
infrastructure to deliver, on a pay per use basis, a solution that enhances
communication by our customers and their employees and/or customers. The first
of two applications included in the solution is a virtual call center solution
known as InfoCast Contact, which unifies customer contact options in a single
integrated system providing voice, chat and e-mail functionality, enabling our
customers to provide a high level of customer service. The second application,
called InfoCast e-Learning, is a complete electronic learning environment which
increases productivity and drives down education costs by giving corporate and
academic learners access to up-to-the-minute training and certification through
e-Learning's web-based portal, which provides access to training and management
resources specific to the CRM industry. Previously, the Company included the
operation of two other divisions, (i) the Community division, which was recently
closed in the quarter ended March 31, 2001, and (ii) the Hosting division, the
assets of which were recently sold to a third party in April 2001. Our cash burn
rate has been significantly reduced due to the closure of the Community and
Hosting divisions operations.
A new management team of experienced executives has been hired to lead the
Company. Since the arrival of a new management team, substantial progress has
been made in marketing and customer development with AT&T Corporation
("AT&T Corp") and AT&T Canada ("AT&T Canada") on the Contact
application.
The Company signed a contract with AT&T Canada for AT&T Canada to
distribute our Contact products.
The Company signed a contract with e-Fundi of South Africa ("e-Fundi") to supply
vocational learning courses to government run school systems. The primary
objective of this agreement is to provide an affordable training solution to
each of the 32,000 schools throughout South Africa, helping them progress toward
outcomes-based education. The solution will provide students with all of the
necessary tools to access state-of-the-art course content through an advanced
and proprietary delivery system solution, developed by the Company. Within the
first year of the contract, e-Fundi may purchase up to $4 million of the
Company's integrated learning solution that includes a full curriculum for
computer fundamentals and Microsoft Office. Information Technology (IT) skills
training (including MCSE Windows 2000 and A+ Training Courseware), will also be
part of the first phase of learning for students. There can be no assurance that
any revenue will result from this contract.
The Company has signed a memorandum of understanding Bell Canada on August 17,
2001 to become the internet based provider of call center agent training systems
for this leading supplier of call center solutions.
No revenue has yet been earned on these contracts with AT&T Corp., e-Fundi and
Bell Canada and there is no assurance that any revenue will be earned from these
contracts in the future.
The Company faces a significant opportunity to improve performance and take
advantage of the new management talent that has been brought into the company.
Operations have been streamlined and are now directed out of the Chicago, IL and
the Tucson, AZ areas. Under-performing operations have been closed and accounted
for and management's focus has been clearly applied to the Contact and
e-Learning solutions.
Our Ability To Continue As A Going Concern Is Dependent On A Number Of Factors.
1. We must obtain additional financing
2. We must capitalize on our Contact contracts with AT&T Corp and
AT&T Canada as well as develop a more varied customer set and non-US
distribution.
3. We must capitalize on e-Learning contracts with Bell Canada,
e-Fundi and Lambton College as well as developing other e-Learning
revenue opportunities. We must also exploit the intellectual
property in our contact academy e-Learning solution, which is aimed
at call center agents.
4. We have been working through our partnership with VIGIC to
identify acquisitions, which will strengthen the company's
intellectual company position and performance potential.
While we have made progress in raising capital through the first half of the
2001 calendar year, most of these resources have been used to manage the
Company's significant working capital deficiency and close non-performing
assets. We have identified potential sources of immediate short term financing
of $1.0 million to $1.5 million, which if completed, may bridge us to the
closing of long-term financing. The Company is currently pursuing an investment
of $5 million in equity financing and a $10 million credit line from potential
lenders. While we expect to finalize some of these financings in the quarter
ending September 30, 2001, there can be no assurance that the Company will be
successful in completing any of the above financing or any additional financing.
If the Company is unable to raise any additional financing, the Company's will
not likely be able to continue as a going concern beyond September 30, 2001.
Results of Operations
Three months ended June 30, 2001 vs. three months ended June 30, 2000
Revenue decreased from $137,137 for the three months ended June 30, 2001 to
$39,497 for the three-month period ended June 30, 2001. Most of the revenues for
the three-month ended June 30, 2000 were from the Hosting division, which ceased
operations on March 31, 2001.
General, administrative and selling expenses reduced from $2,161,796 for the
three-month period ended June 30, 2000 to $1,389,204 for the three-month period
ended June 30, 2001. Most of the decrease from the three-month period ended June
30, 2000 to the same period ended June 30, 2001 was due to the closure of the
Hosting division in the prior quarter, a substantial reduction in investor
relation expenses and marketing expenses, which was partially offset by
increases in professional fees.
Amortization expenses decreased from $1,311,778 for the three months ended June
30, 2000 to $218,580 for the three months ended June 30, 2001. Most of the
decrease is attributable to the write-down of our Hosting division assets in
December 2000, which resulted in lower amortization of the goodwill and
intellectual property in the three months ended June 30, 2001.
Depreciation expenses decreased from $205,766 for the three months ended June
30, 2000 to $33,395 for the three months ended June 30, 2001. Most of the
decrease is due to the write-down of our Hosting division assets in December
2000 and the write-down of other corporate assets in March 2001, all of which
resulted in lower depreciation in the three months ended June 30, 2001.
Interest and loan fees decreased from $1,599,609 for the three months ended June
30, 2000 to $157,025 for the three months ended June 30, 2001. The three months
ended June 30, 2001 included $41,667 related to the amortization of the $500,000
beneficial conversion resulting from the issuance of $500,000 of converible debt
during the quarter (classified as discount on convertible debt). During the
three-month period ended June 30, 2000, $1,455,933 related to the beneficial
conversion feature of the convertible subordinated debentures that were issued
in April 2000, was charged immediately to interest expense. The change in
accounting policy is the result of the adoption of EITF 00-27.
Liquidity and Capital Resources
Our ability to continue as a going concern is uncertain and is dependent on a
number of factors including our ability to arrange financing in addition to the
financing arranged through to August 17, 2001, our ability to manage and defer
certain of our liabilities and the continued support of our management team. In
the event that we are unable to raise financing in addition to the financing
raised through August 17, 2001, we will likely be unable to continue operations
beyond September 2001. We are currently negotiating and evaluating various
financing alternatives, including equity and convertible debenture private
placements. In addition, we have signed distribution agreements that are
expected to accelerate the Company's revenue base for our Contact and e-Learning
businesses. In the quarter ended March 31, 2001, we revised our development
plans and undertook measures to substantially reduce our ongoing operating
budget, including the decision to wind-down our Community division and wind-down
our Hosting division. As of March 31, 2001, we had closed down our Community
division and as at April 26, 2001, we sold our Hosting division assets. In the
event that sufficient financing is not received by the end of September 2001, we
will likely be unable to continue operations. We will continue to evaluate our
cost structure and adjust our organization to reflect our chancing business
environment. The outcome of these matters cannot be predicted at this time.
At June 30, 2001, we had cash and cash equivalents of $387,451 and a negative
working capital of $5,104,724. During the three-month period ended June 30,
2001, we raised $376,000 net of commissions from issuance of our common stock
through a private placement and we also raised $500,000 through issuance of a
convertible promissory note. From July 1, 2001 to August 22, 2001, we have
raised approximately $1,184,000 in gross financing through the private placement
of 2,368,000 units at $0.50 per unit. Each unit is made up of 1 common share of
the Company's common stock and entitles the unit holder to a warrant to purchase
1 share of the Company's common stock at $0.55 per share. The Company paid
$96,000 in commissions related to the private placement. As of August 22, 2001,
the Company continues to have a significant working capital deficiency.
Convertible Debentures
On June 21, 2001, we issued a $500,000 Secured Convertible Promissory Note
bearing interest at 10% per annum. The principal amount and the accrued and
unpaid interest shall be due and payable in one lump sum on October 18, 2001.
The Note is convertible into units at $0.50 per share, each unit consisting of
one common share and one-half of one warrant exercisable at $0.80 per share. The
Company also granted warrants to purchase 500,000 shares of the Company's stock
to the Note holder for no consideration. These warrants have an exercise price
of $1.00 per share and expire on June 15, 2005. The holder of this Note may, at
the Holder's option, declare this Note mature and all monies will be due and
payable, because the Company did not file a registration statement on form S-3
with the Securities and Exchange Commission within fifteen (15) days following
the filing of the Company's annual report on Form 10K, or within forty-five days
following the execution of the agreement.
Sale of certain assets of Homebase Works Solutions Ltd.
On April 25, 2001, we sold the operating assets of our wholly owned subsidiary,
HomeBase in consideration for the buyer assuming certain liabilities of
HomeBase, including the assignment of the leases for the Sun equipment in its
Calgary, Alberta facility (which had a net value of $1,320,760 at March 31,
2001), and certain specific liabilities totaling $80,500 (Cdn$124,769). We are
in the process of winding down the Homebase non-operating assets. Subsequent to
the sale of the operating assets, the buyer has ceased operations and has filed
for bankruptcy protection. Other than the assignment of the leases for the Sun
equipment, the other liabilities including the specific liabilities of $80,500
and the lease for the office facility in Calgary had not been assigned to the
buyer and reverted back to the Company. We have defaulted on this lease,
however, due to its location, we expect that this facility will be re-leased by
the Landlord without difficulty. Therefore, we have not accrued the liability
for the remainder of the term of the Lease. The Capital leases obligation, which
was part of this transaction, will not revert back to the Company.
Agreement with VIGIC Services LLC
In March 2001, the Company entered into an agreement with VIGIC, a CTCR Golder
Rauner LLC company, to render certain consultant and advisory services in
connection with the Company's efforts to develop operating strategies, pursue
possible acquisitions or other strategic transactions, and rise financing to
March 31, 2004. Under the terms of the agreement, VIGIC is paid a monthly
retainer of $16,666, and will be entitled to a financing fee of 7% of the gross
amount raised in the event of a financing between the Company and an investor
introduced by VIGIC. Under the terms of the agreement, VIGIC was also granted
warrants expiring in March 2005 to purchase 1.5 million shares common stock of
the Company, exercisable at $1.00 per share.
Agreement with Team CEO Corporation
Effective April 1, 2001, the Company entered into an agreement with Team CEO to
develop and implement a sales infrastructure and distribution channels including
the associated practices and processes to maximize the Company's revenue
opportunities. Under the terms of the agreement, which ends April 1, 2003, Team
CEO is to receive a monthly fee of $50,000 and commissions of 20% of the net
revenue for the first three sales and 14% of the net revenue thereafter on the
Company's earned revenue, will be entitled to a finders fee of 20% of the annual
compensation in the event of the hiring of professional employees introduced by
Team CEO, and will be entitled to a financing fee of 6% of the gross amount
raised in the event of a financing between the Company and an investor
introduced by Team CEO. Under the terms of the agreement, the three principals
of Team CEO (Malcolm Lotzoff, Richard Hawkinson and Drew Van Vooren) were each
granted options to purchase 1.2 million common shares of the Company at an
option price of $1.00 per share.
Agreement with Sun Microsystems Inc.
On May 4, 2001, the Company entered into a Termination Agreement with Sun to (i)
cancel a $7.3 million lease financing line, (ii) cancel 288,928 unexercisable
warrants related to $5.3 million Lease financing credits not approved at May 4,
2001, (iii) cancel the Company's $20 million purchase obligation, and (iv)
release Sun from any obligation to further investment in the Company. The
initial 109,029 warrants remain outstanding. These warrants are exercisable at a
price of $3.67 per share and expire on September 14, 2005.
Leases
On May 15, 2001, the Company entered into a lease agreement to occupy
approximately 4,881 square feet of office space in Tucson, Arizona. The lease
term is effective from July 15, 2001 to July 15, 2004. The total rent expense is
$92,739, $96,449, and $104,486 per year for the periods from July 1, 2001 to
June 30 2002, July1, 2002 to June 30 2003, and July1 2003 to July 15 2004,
respectively, excluding operating costs. We moved our headquarters to this
location.
On May 31, 2001, the Company entered into a lease agreement to sublease
approximately 10,483 square feet of office space in Bannockburn, Illinois. The
lease term is effective June 5, 2001 and shall expire on October 30, 2002. This
location will house our Contact operations.
Restructuring
In March 2001, we recorded a restructuring accrual of approximately $1,900,000
for severance costs and redundant lease costs. During the quarter ended June 30,
2001, approximately $159,000 was paid for severance expenses and no additional
amounts were charged to the accrual.
Contingencies
In October 2000, a former employee filed a legal action against us and certain
of our directors and officers alleging wrongful dismissal and negligent
misrepresentation. The Plaintiff is seeking wrongful dismissal damages of
Cdn$50,000 (approximately US$32,000), damages for "loss of opportunity"
Cdn$1,000,000 (approximately US$ 641,500), punitive damages of Cdn$50,000
(approximately US$32,000), unspecified "special damages", interest and costs.
The Plaintiff's employment was terminated on July 28, 2000 and the Plaintiff
seeks six months' severance, which is included in the amount above. A statement
of defense has not yet been prepared by the Company. We believe that we have a
valid defense to the claim and intend to defend it vigorously. By a court order
dated February 19, 2001, the action was dismissed with prejudice against some
directors and officers of the Company. In addition, we believe that the results
of this matter will not have a material adverse impact on our Company, although
an unfavorable decision could have a material adverse affect on our business,
financial condition and results of operation. No provision has been made in the
accounts in respect of this claim.
On February 1, 2001, we received a demand for payment from an investment advisor
in the amount of approximately $900,000 regarding fees in connection with
alleged advisory services performed in connection with the acquisition of i360
in 2000. We do not agree that any fee is owed in connection with these alleged
advisory services and intend to contest rigorously such request for payment. No
provision has been made in the accounts in respect of this request.
As at March 31, 2001, the Company owed approximately $720,000 to supplier of
telecommunications services to its Community division, which was closed in
February 2001, pursuant to a services agreement dated December 28, 2000. On May
15, 2001, the supplier and we terminated the agreement and agreed to settle all
financial matters, including the $720,000 payable as at March 31, 2001 and a
cancellation fee, conditional on the payment of $450,000 in various installments
prior to September 2001. As at March 31, 2001, we recorded a liability of
$720,000. We paid $50,000 during May 2001. We renegotiated the payment terms,
pursuant to an agreement dated July 9, 2001, whereby we paid $100,000
immediately, $100,000 was to be paid on July 31, 2001, $100,000 was to be paid
on August 15, 2001 and $150,000 was to be paid on August 31, 2001. We have not
paid the installments due on July 31, 2001 and August 15, 2001 and as a result,
the settlement becomes void at the option of the vendor and the Company may be
liable for the cancellation fee if the Company is unable to renegotiate a
settlement.
We are not involved in any other legal proceedings and disputes. While we
believe that these matters will not have a material adverse affect on our
financial position, a protracted litigation or an unfavorable decision could
materially affect our operations and financial condition through the consumption
of management time and the utilization of scarce financial resources.
Outlook
Our ability to continue as a going concern is uncertain and is dependent on a
number of factors including our ability to arrange additional financing. We
believe that our existing cash, expected short term financing and expected
limited cash collections from sales of our Contact and e-Learning products and
services will be sufficient to fund our working capital requirements to
September 30, 2001.
As of August 22, 2001 the Company continues to have a significant working
capital deficiency.
We have had limited sources of revenue, have incurred losses since inception and
expects to incur additional losses until such time as we are able to sell enough
products and/or services where revenues will cover operating expenses and
overhead.
In as much as we will continue to have a high level of operating expenses and
will be required to make significant up-front expenditures in connection with
the development of our business, we anticipate that losses will continue for at
least the foreseeable future and until such time, if ever, as we are able to
generate significant revenues or achieve profitable operations.
We are dependent on the proceeds of additional financings to manage our working
capital deficiency and implement our revised business plan. We are currently
negotiating with several investor groups for potential financing. There can be
no assurance that additional financing will be available to us on commercially
reasonable terms or at all. If we are unable to raise any additional financing
before September 30, 2001, we will not likely be able to continue as a going
concern.
Inflation has not been a major factor in our business. There can be no
assurances that this will continue.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement on Financial
Accounting Standards (SFAS) No.133, Accounting for Derivatives Instruments and
Hedging Activities in 1998. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company adopted SFAS No. 133 effective
April 1, 2001 for the year ended March 31, 2002. The adoption of SFAS No. 133
has not had an effect on the financial position or results of operations of the
Company.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other in Intangible Assets, effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 is not expected to have an effect on the
Company because other intangible assets will continue to be amortized over their
useful lives.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company is exposed to immaterial levels of market risks with respect to
changes in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and prices, such
as foreign currency exchange and interest rates. To the extent that the Company
consummates financings outside of Canada, the Company receives proceeds in
currency other than the Canadian dollar. Most of the Company's operating
expenses are incurred in Canadian dollars. Thus, the Company's results of
operations will tend to be adversely affected if there is a strong Canadian
dollar. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes, nor does it enter into
financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates.
The Company issued convertible subordinated debentures in March, April, June,
November and December 2000 and June 2001, in the amount of $9.21 million, of
which $0.5 million pays interest at a fixed rate of 10% and the balance pays
interest at a fixed rate of 7%. Of this amount, $1.35 million of the convertible
subordinated debentures were converted to common stock, and another $0.75
million of the convertible subordinated debentures were redeemed, leaving a
balance of $7.11 million of convertible subordinated debentures as at June 30,
2001. The Company is exposed to changes in interest rates as it affects the
value of the debt and the Company's relative cost of capital.
While the Company seeks to place its cash and cash equivalents with high
credit-quality financial institutions, the Company is still exposed to credit
risk for uninsured amounts held by such institutions.
Part II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Sale of Unregistered Securities
The following unregistered securities were issued by the Company during the
quarter ended June 30, 2001:
Number of Shares
Description of Sold/Issued/Subject To Price
Date Securities Issued Options or Warrants Per Share Notes
- ------------------------------------------------------------------------------------------------------------------------------------
April 1, 2001 common shares 205,883 $1.70 Issued upon conversion of $350,000 convertible debenture
April 1, 2001 common shares 190,000 $0.50 Granted as part of private placement of common shares
April 1, 2001 warrants 95,000 $0.55 Granted as part of private placement of common shares
April 3, 2001 options 1,217,000 $1.00 Granted to employees under the 2000 Stock Option Plan
April 23, 2001 common shares 100,000 $0.50 Granted as part of private placement of common shares
April 23, 2001 warrants 50,000 $0.55 Granted as part of private placement of common shares
May 17, 2001 options 250,000 $1.00 Granted to various employees under the 2000 Stock Option Plan
May 27, 2001 options 3,600,000 $1.00 Issued as consideration for consulting services
June 19,2001 common shares 490,000 $0.50 Granted as part of private placement of common shares
June 19,2001 warrants 245,000 $0.55 Granted as part of private placement of common shares
June 21,2001 warrants 500,000 $0.80 Granted as part of promissory note agreement
June 27, 2001 options 750,000 $1.00 Granted to an employee outside the 2000 Stock Option Plan
June 27, 2001 options 237,500 $1.00 Granted to various employees under the 2000 Stock Option Plan
June 27, 2001 warrants 750,000 $1.00 Issued as part of financing services agreement
The issuance of these securities is claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
these securities.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
InfoCast Corporation
Date: August 22, 2001 By: /s/ William Lowe
------------------------------
William Lowe
Chief Executive Officer
(Duly Authorized Officer and Acting
Principal Financial Officer)
