SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
INFOCAST CORPORATION
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(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 No.)
1 Richmond Street West, Suite 902, Toronto, Ontario M5H3W4
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (416) 867-1681
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
NONE NONE
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of class)
Unless otherwise indicated, all information contained in this
Registration Statement gives effect to a 2 for 1 stock split effected on October
19, 1998.
ITEM 1. BUSINESS.
General
InfoCast Corporation (the "Company"), a development stage company, is
an Application Service Provider ("ASP") in the business of electronic content
delivery and information management on multiple communication platforms to meet
the growing global needs of high speed corporate information consumers. The
Company's content will be delivered through a North American network of
strategically placed information hubs ("i-Hubs"). These hubs will be implemented
on Sun Microsystems servers and based on Sun Solaris, Netscape and Java related
technologies, providing a high level of reliability, scalability and
performance. The Company's network and strategic alliances will provide the
essential communication link between information sources and information users
worldwide so that information can be delivered in real-time to anyone, anywhere,
in any format - data, voice or animation using the Internet or private networks.
An ASP provides services to implement, host and maintain packaged
applications and information technology (IT) services for customers on
commercial i-Hubs. The i-Hubs can be characterized as the core of an information
utility, being large servers that host a variety of content and applications,
and use the Internet as a primary distribution method. In general, the customer
enters into a multi-year contract with the ASP where the application license and
services are paid for on a monthly or per-transaction basis. Enterprises have
traditionally sourced solutions from multiple vendors, application vendors,
system integrators and hosting vendors or have created the components
internally. The Company will provide an alternative to this approach by being a
single source ASP with a highly scalable, reliable and secure information
utility. The Company will use distributed architecture technology to offer
device-to-device communication capability that is real-time, as well as
independent of underlying network architecture, operating system, database or
hardware. The Company has created software technology that will be applied to
the vertical markets of distributed learning, call centers and teleworking.
The Company has focused its technical expertise on taking legacy
software and training content and moving it, not only to the World Wide Web, but
to an ASP business model. The Company focuses on providing software which has
the ability to work in a mission critical environment, regardless of time zone,
network or geographical boundaries. The Company has considerable technical
knowledge in creating multi-vendor Virtual Private Network ("VPN") solutions,
multiple customer support from a single package of enterprise software and
creating three-tier software from traditional client-server models.
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History of the Company
The Company was incorporated on December 23, 1997 as Grant Reserve
Corporation, a junior mining company. During the year ended December 31, 1998,
the Company issued 5,000,000 shares of Common Stock to Sheridan Reserve
Incorporated for the acquisition of two mining interests and in April 1998
issued 1,000,000 units at a price of $0.50 per unit in a private placement
financing. Each unit consisted of one share of Common Stock and one Common Stock
purchase warrant with an exercise price of $0.50 per share before December 31,
1998. The $500,000 issue price of the units was satisfied through the receipt of
cash proceeds of $260,000 and the settlement of a non-interest bearing note of
$240,000 that was due from the Company.
On October 13, 1998, the shareholders of the Company voted to effect a
two-for-one stock split that increased the number of outstanding shares of
Common Stock from 6,000,000 to 12,000,000 and increased the number of
outstanding Common Stock purchase warrants from 1,000,000 to 2,000,000.
Accordingly, the exercise price of the Common Stock purchase warrants was
reduced to $0.25 per share. Subsequently, 1,580,000 of the Common Stock purchase
warrants were exercised at $0.25 each for cash proceeds of $395,000. The
remaining 420,000 Common Stock purchase warrants expired.
Prior to 1999, the Company's sole business was in the natural resource
sector and the Company held certain mineral interests in the United States. Due
to changes in the United States regulatory environment, management determined
that it would be appropriate for the Company to sell all of its mining assets,
which represented substantially all of the Company's assets. The Company
completed the sale of its mining assets in the fourth quarter of 1998. During
1998, the Company changed its name from Grant Reserve Corporation to InfoCast
Corporation. Prior to changing its name and subsequent to the sale of its mining
assets, the Company was a publicly-traded company whose common stock was quoted
on the OTC Bulletin Board under the symbol ("GNRS") without any ongoing business
operations.
On January 29, 1999, the Company consummated the acquisition of all of
the voting capital stock of Virtual Performance Systems, Inc., a Canadian
corporation ("VPS"), for 1,500,000 shares of Common Stock of the Company.
Pursuant to a letter of intent, dated February 10, 1999, as amended,
between the Company and Applied Courseware Technology (ACT) Inc. ("ACT"), the
Company intends to purchase a 100% interest in ACT in consideration of (i)
750,000 shares of Common Stock of the Company and (ii) the assumption of debt of
ACT of approximately $670,000. The transaction is subject to satisfactory due
diligence. From February to June 1999, the Company paid Cdn $140,000 of the ACT
debt and made cash advances to ACT totaling Cdn $498,000 to fund certain
development expenditures incurred on behalf of the Company. ACT develops
enterprise-wide training and job task analysis application software. Such
training and software enables ACT's customers to reduce costs associated with
the analysis, design and maintenance of their training and performance
management systems.
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In March 1999, the Company consummated a private placement financing
pursuant to which it issued 2,767,334 shares of Common Stock for an aggregate
offering price of $4,151,001 pursuant to Regulation S of the Securities Act of
1933, as amended.
In March 1999, the Company consummated a private placement financing
pursuant to which it issued 265,002 shares of Common Stock for an aggregate
offering price of $397,503 pursuant to Regulation D of the Securities Act of
1933, as amended.
Pursuant to an agreement dated December 15, 1998, as amended by a
letter agreement dated March 12, 1999, between the Company and ITC Learning
Corporation ("ITC"), the Company purchased from ITC the distribution rights for
certain education and training products in consideration for $975,000 in respect
of the first 150,000 user licenses and based on a shared revenue formula for
user licenses in excess of 150,000. The first $500,000 of the initial $975,000
purchase price was paid in March 1999 and the final $475,000 of the initial
$975,000 purchase price was paid in April 1999.
Pursuant to an agreement dated March 22, 1999, the Company issued
60,000 shares of Common Stock to a financial investment consulting firm for
assistance in securing additional financing over the following year.
In May 1999, the Company and Call Center Learning Solutions ("CCLS")
formed a new company, Call Center Learning Solutions On-Line, Inc. ("CCLS
OnLine"), which is owned 50/50 by both parties. CCLS Online will initially
convert and market 11 browser-based interactive multimedia courses over a
12-month period. CCLS has developed 29 instructor-led courses that cover every
aspect of call center operation. CCLS owns one of the most comprehensive call
center training curriculums in the world. Their training programs have been
delivered to over 5,000 businesses worldwide. The agreement between CCLS and the
Company provides for courseware conversion, hosting on the InfoCast Digital
Exchange Library ("DXL") and deployment of the courseware to the global market
over a high speed and secure virtual private network ("VPN").
On May 13, 1999, the Company acquired all of the outstanding common
shares of Homebase Work Solutions Ltd. ("Homebase"), a telework solution
provider headquartered in Calgary, Alberta, Canada. The purchase price was
satisfied by the issuance of 3,400,000 shares of Common Stock of the Company.
The addition of Homebase gives the Company a unique ability to provide secure,
reliable and high-quality information flow between either the nomadic or
home-based employee and its corporate data resources. Homebase will work in
conjunction with the Company's Distance Learning and Call Center divisions to
assist companies seeking to use the Internet to grow their business while
effectively managing their information technology expenditures.
In June 1999, the Company issued warrants to purchase 25,000 shares of
Common Stock at an exercise price of $7.00 per share to a consulting firm.
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In June 1999, in return for services, the Company issued warrants to
purchase an aggregate of 200,000 shares of Common Stock at an exercise price of
$7.00 per share to four individuals.
In June 1999, the Company entered into a memorandum of understanding
with Willow CSN (Canada) Inc. ("Willow") to launch Canada's first commercial
virtual call center ("VCC").
In June 1999, the Company entered into an agreement with ITC Learning
Corporation ("ITC") pursuant to which the Company will become ITC's exclusive
distance learning technology partner for the delivery of educational material
for the state of California for consideration of $2,000,000, payable in three
installments, the first of which was paid in August 1999 and the remaining of
which will be paid in September and October 1999.
On June 24, 1999, the Company consummated a private placement financing
pursuant to which it issued 420,000 shares of Common Stock and warrants to
purchase 70,000 shares of Common Stock at an exercise price of $7.00 per share
for an aggregate offering price of $2,100,000 pursuant to Regulation D of the
Securities Act of 1933, as amended.
In July and August 1999, the Company issued 1,100,000 shares of Common
Stock in a private placement financing for an aggregate offering price of
$6,050,000 pursuant to Regulation S of the Securities Act of 1933, as amended.
The Company may issue up to an additional 1,400,000 shares of Common Stock for
an aggregate offering price of $7,700,000 pursuant to such offering.
Background
The ability to deliver information to anyone, at any time, at any
place, remains the cornerstone objective of today's communications systems. This
is the case whether that information is transmitted over a private or public
network (including the Internet), via computers, telephone and/or satellite.
The 48% combined annual growth rate (source: Gartner Group, 1998) of
the Internet, electronic commerce and corporate intranets, means that companies
and individuals are continuing to increase their use of corporate and home-based
systems to send and receive ever more complex information.
The dilemma facing suppliers of information, and those wanting to
receive it, is the inability of the various networks, operating systems,
communication protocols and communications systems to interface seamlessly. This
situation is analogous to people from different countries with different
languages all trying to communicate.
The business opportunity in the near term is for the deployment of
technology that links different network infrastructures so that information can
be deployed and used from a remote central server or i-Hub which is at the core
of the ASP business model. Information can then be accessed
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in near real-time across dedicated networks or reduced with regard to the
fidelity and resolution of its content and then accessed through the Internet.
The Company seeks to position itself to take advantage of this opportunity.
The Company's Initial Delivery Services
Distance Learning. The Company's Distance Learning application is an
end-to-end, highly interactive learning environment that enables corporate,
academic and retail learners to access digital content through a standard
browser interface. Learners interact with subject matter to enhance and support
their learning endeavors. By having the tools to interact with career and
instructional experts seven days a week, 24 hours a day, through e-mail, chat
rooms and other real-time collaborative tools across the Internet or a dedicated
network, the Company believes it can offer a higher level of service than any of
its competitors. The Company's core software supports distance learning
initiatives such as the "AT&T Canada Learning Partner Program(TM)" ("AT&T LLP"),
a program designed for AT&T Canada to offer additional value to its existing and
potential clients. The objective of the AT&T LPP is to be a leader for real-time
interactive electronic delivery of distance learning to corporate and academic
organizations and their respective end-users. The Company's technology will act
as the enabling technology of the AT&T LPP to permit distance education over any
electronic medium. The Company is currently in the progress of launching its
distance learning beta testing program.
An important component of the Company's learning environment is the
Learning Management System ("LMS"). The LMS consists of proprietary software
created by the Company to support multiple corporations and learning
organizations that offer content in an ASP environment. The software was
designed from the ground up with role-based security, multiple language support
and multi-enterprise billing and tracking facilities. Acting as a "security
blanket" around the content, the LMS permits other organizations to embed their
web-based training content without fear of losing intellectual property over the
Internet and still permits that organization's employees to telework for
training.
The Company has secured an agreement with College Boreal of Sudbury
(Ontario) Canada to convert and make available current courses for distribution
using the Company's real-time broadcast technology. The Company, AT&T Canada and
College Boreal are working together to deliver a national distance learning
program using AT&T Canada's coast-to-coast network. College Boreal, which
currently services the needs of the francophone community in Northern Ontario,
will provide access to interactive learning anywhere, anytime for both corporate
and academic studies. This program will be delivered by blending real-time
electronic learning and facilitated learning utilizing the Company's
browser-enabled solutions and applications distributed over AT&T Canada's
advanced fiber optic and digital microwave network. College Boreal,
headquartered in Sudbury, Ontario, has seven campuses in Northern Ontario, each
connected to the largest telecommunications network among academic institutions
in Canada.
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The AT&T LPP includes:
o Learning COACH, a group of subject matter experts that give
guidance to learners in real time.
o Career COACH, a team that gives learners guidance with career
development.
o Digital Exchange Library lets learners access "best of class"
content in single units or as part of a curriculum regardless
of method of delivery.
o Learning Activity Templates to help busy faculty members
develop courses rapidly.
The Company's objective as a participant in the AT&T LPP is to
establish the AT&T LPP as the leader in distributed learning. By combining
training and curriculum expertise of premier corporations and academic
institutions with the Company's technology, the AT&T LPP is expected to deliver
real-time distance learning over any electronic medium.
o The Company's delivery software is expected to deliver
skills-based interactive multimedia content to corporate,
academic and retail learners.
o The AT&T LPP will differentiate itself from other training
methodologies by delivering an end-to-end interactive learning
solution over any network together with the most comprehensive
distance learning support.
o The use of the Company's technology will also provide content
vendors with confidence that their intellectual property will
not be compromised.
o The AT&T LPP will allow self-paced learning to maximize
personal and career success of learners over their lifetime.
o The AT&T LPP will support the learner with live on-line
telephone coaching within a standard Internet browser (i.e.,
Netscape or Explorer). The learner will access a browser for
interactive learning producing a more collaborative learning
experience.
o The AT&T LPP will enhance conventional classroom-based and
current distance learning delivery methods.
o The agreement with AT&T Canada's academic clients will provide
the Company with premier academic partners to launch its
distance learning program beginning in Canada.
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o The Company believes that the experience and relationships
acquired by the Company's management team in the
telecommunications call center industry provide the necessary
experience and resources to successfully launch and expand the
LPP.
Virtual Call Centers ("VCCs"). The Company's VCC solution will
potentially allow any caller or customer to reach a trained agent at any time,
from almost any place. The agent can, if necessary, also have secure access to a
merchant's in-house databases. Customer data is protected by a multi-level
secured dedicated network, yet is fully accessible via the AT&T Canada Digital
Network or via the Company's Private Access System ("PAS"). The PAS is a dial-up
solution that allows a VCC Customer Service Representative to process calls from
remote locations via a toll-free service. It seeks to do away with the need for
dedicated lines to the house or long-term relationships with internet service
providers. The Company's VCC solution's reduced cost structure will potentially
enable firms to enhance the quality of any customer contact and improve
profitability without incurring large capital costs.
The Company's VCC solution will permit any customer or prospect, any
time, anywhere, in its language of choice, to connect to an electronic or live
agent without unwarranted delay. The VCCs let call center agents work from home.
Using the Company's technology, VCCs enjoy all the features of a traditional
call center while reducing capital and human resource overhead. Call center
agents are recruited, hired and trained using the Company's network. The
Company's VCC application allows firms to service existing and new clients with
better cost structures while both enhancing levels of service and reducing
costly employee turnover.
Unlike traditional call centers, with the Company's VCC solution:
o Merchants can offer products to a worldwide audience.
o Consumer sales and service inquiries can be routed to the
advertiser, retailer or their agent.
o Any caller or customer can reach any participating merchant
at any time from any place.
o Any customer can connect to a trained agent who understands
the product, speaks the customer's language and has secure,
real-time access to the merchant's customer database.
The concept of the VCC is predicated on the Company's ability to
provide the communication software that allows the VCC agent, the buyer and the
vendor to be linked together in real-time. VCC is based upon a high volume of
inbound customer calls that are routed transparently to a VCC representative who
answers and services the call. The VCC operator is able to accept a buyer's call
and immediately access the merchant's database, locate the appropriate
product/service and process the buyer's request immediately. The Company's
software programs
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provide the necessary communications linkage and speed to allow all three
parties to interact in real-time to the buyer's transaction.
Customers will have the freedom to interact with merchants over any
network. Accordingly, the buyer-seller can interface more often at the point in
time when the buyer wants to complete the transaction, therefore, large
companies can reduce marketing costs, while small companies can access channels
of distribution that were not open to them before. The end result is that
merchants' overall profit margins increase, while users get what they want, when
they want it.
Teleworking. Working through the use of remote access is no longer
merely an option in many types of work. Instead, remote access has become a
necessary feature in competitive sales, customer relationship management and
flexible work programs. The Company and Homebase are creating a network
infrastructure to connect individuals working from their homes with the
corporate office. HomeBase's niche in the remote access market lies in its
ability to deliver services that facilitate the implementation of teleworking
solutions. The Company and Homebase will seek to make this system reliable,
secure and highly accessible so that it can provide complete management and
administration to individuals who need to connect to corporate data resources.
The Company's teleworking application will involve:
o The Company's high-speed and secure data and voice network to
connect telecommuters with their offices.
o Psychological assessment technology to access an individual's
ability to work well from home.
o A turnkey solution that supplies the hardware, software,
ergonomic counseling and telecommuting training.
o Ongoing monitoring and mentoring, evaluation, coaching and
certification.
The Company will offer a customized bundled solution that will provide
all the components to implement a successful telework program.
Strategic Alliances and Associations
The Company has entered into, and is developing, a number of key
strategic alliances in order to further its operations. Some of these
relationships and the strengths of each partnership (with specific reference to
the Company) are noted below:
AT&T Canada ("AT&T"). The Company has entered into a letter of
understanding with AT&T with respect to its distance learning and VCC services.
AT&T will provide the Company with a Virtual Private Network for secure and
global information delivery. AT&T is considered by
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many industry analysts as the international call center telecommunications
leader and hence will provide the Company with:
o state-of-the-art call center technology;
o an extensive call center Marketing & Alliance Program;
o access to the Canadian toll-free (that is, call center)
marketplace;
o access to the United States call center market;
o access to the international call centers.
Sun Microsystems, Inc. ("Sun"). The Company has an oral arrangement
with Sun whereby Sun will provide computer equipment, operating systems,
applications software and servers in order to initiate the Company's distance
learning program and the VCC. Sun servers and related operating systems
(including Java tools) provide the Company with critical communication functions
to link both private and public networks together. The Company has already
ordered the first i-Hub server that will host the Company's applications. Sun
provides the Company with:
o A recognized network and Internet computer partner with
worldwide service and support;
o A stable operating system environment further enabled by the
networking capability of its Java programming language and
environment;
o A clear and distinctive processing performance that will meet
the challenges of network computing;
o Solid communication tools and programs to support global
network connectivity;
o Internet firewall technology providing support users with
transparent access; and
o Professionals worldwide who can support complex network
designs and problems.
The Company's Technology
As an Application Service Provider, the Company's focus is to enable
customers to access the best software packages via a standard web browser and
Internet access without regard to geographical point of origin, underlying
network architecture or personal computer make or model.
The Company's technological expertise lies in five key areas:
o building fully-clustered server architecture for mission
critical applications;
o converting conventional client-server software to an N-Tier
architecture that supports load-balancing and fail-over;
o integrating VPN solutions from multiple vendors within a
single client installation;
o converting bandwidth intensive CD-ROM-based multimedia content
into a streamable, variable speed-of-delivery format that is
suitable to an Internet environment; and
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o using Voice Over-IP ("VoIP") technology to reduce call center
infrastructure costs while maintaining carrier-grade voice
quality and service.
As an example of its efforts to date, the Company has been using its
expertise to turn up a four processor Sun Enterprise 10000 super computer
installation, as well as a four machine clustered Intel solution. At the same
time, the Company has been experimenting with various distributed technologies
for pipelining web requests to increase handling capacity. These efforts will
form the basis of InfoCast i-Hub technology, which the Company envisions as
having a robust server architecture that can be repeatedly deployed in various
geographic locations with a minimum of effort and a maximum of processing
capacity.
To further the growth of the ASP industry, the Company is focused on
taking best-of-breed software from specific vertical markets and converting it
to support e-commerce. One example of this is the Company's work with a leading
oil and gas financial software vendor. The Company is in the process of taking
this vendor's conventional client-server architecture and converting it to work
in an N-Tier server-based environment, which is well suited to the ASP business
model. The Company believes that this will result in a software system that is
more robust and scalable than the vendor's existing architecture.
The Company's VCC business model is based on supporting multiple
customers with a single Customer Service Representative ("CSR") from any
geographical location. Thus, the CSR would not be limited to a traditional
brick-and-mortar call center building. To this end, the Company has developed
considerable experience in enabling multiple vendor VPN solutions to work in a
single client installation. This permits a single CSR to access corporate data
from multiple clients, regardless of the firewall or VPN solution the client may
have selected as its corporate standard.
During the multimedia training boom of the early 1990's, CD-ROM was the
de-facto standard for content delivery. The problem with CD-ROMs was that they
did not permit the customization required by large, technologically
sophisticated and globally oriented companies. CD-ROM was very much a
"one-size-fits-all" solution. Additionally, CD-ROMs did not provide the sense of
community and shared learning offered by the conventional classroom environment.
The Company believes that these problems can be solved by the use of the World
Wide Web. The Company intends to purchase ACT, which has considerable
technological experience not only in translating CD-ROM based content to a
format suitable for deployment over the World Wide Web, but also in creating the
tools for customization and group learning that were missing from the CD-ROM
format. ACT has developed a form of browser-based interaction format that
contains full Java-based audio- recording capabilities but does not require the
use of a browser "plug-in." Additionally, the use of training templates allows
ACT to migrate content much more quickly to a World Wide Web environment. The
Company believes that this will give it a competitive advantage over many
existing "learning over-the-web" companies that ask their clients to completely
redo their content to conform to the demands of the World Wide Web's format.
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Finally, the Company has spent considerable effort in taking VoIP
technology out of the hands of the hobbyist and into mainstream markets. The
cost justification of using the Internet's network architecture for
carrier-grade voice transmission has long been understood, but rarely achieved
due to a lack of quality of service on the Internet. The Company's work with
AT&T Canada, combined with an innovative business model and leading edge VoIP
technology, makes it possible for the Company to offer a competitive voice
network to any call center agents located near an i-Hub Point-of-Presence
("POP"). The Company's first POP is located in Markham, Ontario Canada and will
service the Greater Toronto Area. Additional i-Hub installations will service
this geographical area as well. All features of a regular call center, such as
Automated Call Distribution, and Interactive Voice Response, as well as
forward-looking call center technologies such as Unified Messaging and web-based
help desks, are also supported by the Company's installation. While the Company
does not develop the VoIP software itself, it has developed considerable
experience in the technical issues surrounding VoIP's successful implementation
and now believes it can successfully select best-of-breed vendors to meet the
demand it anticipates in this market.
Market Overview
Education/Training Delivery
The North American training market is approximately $74 billion in
size, with $6 billion being spent in Canada and $68 billion being spent in the
United States. The North American post-secondary education market spends
approximately $225 billion annually on training and the K-12 market spends
approximately $410 billion annually on training (AAHE Bulletin, 1998). The
factors driving people and businesses to seek training include: (i) business
requirements of staff to be certified in certain technologies in order to assure
performance and productivity; (ii) corporate downsizing, resulting in increased
training requirements for ex-staff as well as for employees who perform multiple
job tasks that require knowledge of various jobs; (iii) the proliferation of
computers and networks throughout all levels of organizations, increasing the
number of employees who need training; and (iv) the continuous introduction and
evolution of new technologies, contributing to the need for continuing
education.
Call Center Marketplace
The Call Center marketplace is a collection of vertical industries that
conduct inbound or outbound telemarketing practices. In total, there are some
95,000 Call Centers in North America.
Outsourcing of call centers is gaining popularity in North America and
Europe. There is an emerging number of large firms offering Call Center
outsourcing and management. One of the best examples is MCI. MCI estimates that
the market for Call Center outsourcing is more than $12 billion today and is
growing at 25% annually, while the number of companies taking advantage of Call
Center outsourcing is expected to double in the next five years.
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Marketing and Sales Strategy
The marketing and sales strategy for the Company will utilize the
established businesses and proven products and services of the Company's
strategic partners to allow the Company to generate revenues immediately through
its Distance Learning and Virtual Call Center applications.
Utilizing this strategy, the Company is positioning itself into a
marketplace where the only constant is change; both industries and technologies
are converging in order to maximize profits and reduce overhead. Customers in
today's business environment are demanding integrated solutions that are
transaction oriented and businesses perceive current technologies as a threat
rather than an opportunity for enhancement. The success in this market for the
Company will depend on its ability to generate competent, simple and flexible
solutions for customers.
The Company believes that it has positioned itself as a "single source"
for on-line media delivery in the distance learning market and can offer an
unbiased service to all major institutional and non-institutional educators
through its multi-level alliance strategy. The VCC solution provides the
environment to undertake any type of commercial transaction between seller and
buyer.
The Company's alliance partners will be provided with:
o A new medium on which to promote products, advertise, recover
data and interact with customers instantaneously.
o An on-line media delivery system that will facilitate
distribution of content to an unlimited number of users using
the convenience of the Internet, cable, satellite or intranet
networks.
o A cost-effective VCC that offers buyers and sellers with a
seamless network that is based on an architecture that is
platform, database and operating system independent. This
means that more people can use and access the system because
it does not change the way they learn about a product today -
the Company's solution simply makes buying the
products/services simpler and faster.
Through the new age of communications and technology, there are no
geographical limitations to doing business in the next century. Therefore, the
Company will have global reach for customers, leveraging the strengths of
alliance partner services and their clients in a "sell with, sell to" strategy
for both business to business and business to consumer applications. The
Company's product and service offerings will be marketed with both "off the
shelf" and customized applications.
The Company will provide customers with a compelling strategy to do
business by providing bundled offers including proven technology, content
delivery, management, hosting and transaction based revenue.
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Competition
The market for the Company's products and services is highly
competitive and subject to rapid technological change. The Company is using
certain third-party technologies and products that, in different forms, have
already been introduced and are being used in the marketplace. Competitors may
quickly deploy products and e-commerce technology that could limit the Company's
expansion. The Company expects competition to increase in the future. Many of
the Company's potential competitors have substantially greater financial,
technical and marketing resources than the Company. Increased competition could
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully.
Intellectual Property and Other Proprietary Rights
The Company's success is dependent in part on intellectual property
rights, including information technology, some of which is proprietary to the
Company. The Company relies on a combination of nondisclosure and other
contractual arrangements, technical measures, trade secret and trademark laws to
protect its proprietary rights. The Company does not presently hold any patents
for its existing products or services and presently has no patent applications
pending. The Company generally enters into confidentiality agreements with its
employees and attempts to limit access to and distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use or take
appropriate steps to enforce intellectual property rights. In addition, there
can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. Further, the laws of many foreign countries do not protect
the Company's intellectual property rights to the same extent as the laws of the
United States. The failure of the Company to protect its proprietary information
could have a material adverse effect on the Company's business, financial
condition and results of operations.
From time to time, third parties may assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies that
are used by the Company. Litigation may be necessary to defend against claimed
infringements of the rights of others or to determine the scope and validity of
the proprietary rights of others. Future litigation may also be necessary to
enforce and protect trade secrets and other intellectual property rights owned
by the Company. Any such litigation could be costly and cause diversion of
management's attention, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. Adverse
determinations in such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities (including
possible indemnification of its customers), require the Company to secure
licenses from third parties or prevent the Company from the manufacturing or
selling its products or services, any one of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has
-14-
not conducted a formal patent search relating generally to the technology used
in its products or services. In addition, since patent applications in the
United States are not publicly disclosed until the patent issues and foreign
patent applications generally are not publicly disclosed for at least a portion
of the time that they are pending, applications may have been filed which, if
issued as patents, would relate to the Company's products or services. Software
comprises a substantial portion of the technology in the Company's products. The
scope of protection accorded to patents covering software-related inventions is
evolving and is subject to a degree of uncertainty that may increase the risk
and cost to the Company if the Company discovers the existence of third party
patents related to its software products or if such patents are asserted against
the Company in the future. Patents have been granted recently on fundamental
technologies in software, and patents may issue which relate to fundamental
technologies incorporated into the Company's products or services.
While the Company employs proprietary software technology and
algorithms and conducts ongoing research and development, the future success of
the Company will depend in part upon its ability to keep pace with advancing
technology, evolving industry and changing customer requirements in a
cost-effective manner. There can be no assurance that the Company's proprietary
software technology and algorithms will not be rendered obsolete by other
technology incorporating technological advances designed by competitors that the
Company is unable to incorporate into its products or services in a timely
manner.
The market for the Company's products and services is characterized by
rapidly changing technologies. The rapid development of new technologies
increases the risk that current or new competitors could develop products or
services that would reduce the competitiveness of the Company's products or
services. The Company's success will depend to a substantial degree upon its
ability to respond to changes in technology and customer requirements. This will
require the timely selection, development and marketing of new products or
services and enhancements on a cost-effective basis. The development of new,
technologically advanced products or services is a complex and uncertain
process, requiring high levels of innovation. The introduction of new and
enhanced products or services also requires that the Company manage transitions
from older products or services in order to minimize disruptions. There can be
no assurance that the Company will be successful in developing, introducing or
managing the transition to new or enhanced products or services or that any such
products or services will be responsive to technological changes or will gain
market acceptance. The Company's business, financial condition and results of
operations would be materially adversely affected if the Company were to be
unsuccessful, or to incur significant delays, in developing and introducing such
new products, services or enhancements.
Employees
At August 31, 1999, the Company had 32 full-time employees. None of the
Company's employees is represented by a collective bargaining agreement nor has
the Company experienced any work stoppage. The Company considers its relations
with its employees to be good.
-15-
Risk Factors
An investment in the Common Stock of the Company is highly speculative,
involves a high degree of risk and should be considered only by those persons
who are able to afford a loss of their entire investment. In evaluating the
Company and its business, prospective investors should carefully consider the
following risk factors in addition to the other information included in this
Registration Statement.
Risks Relating to the Financial Condition of the Company
Environmental Liabilities. Prior to 1999, the Company's sole business
was mining exploration and development. The mining and mineral processing
industries are subject to extensive governmental regulations for the protection
of the environment, including regulations relating to air and water quality,
mine reclamation, solid and hazardous waste handling and disposal and the
promotion of occupational safety. The Company could be held responsible for any
environmental liabilities relating to the mining businesses that were sold by
the Company which liabilities could have a material adverse effect on financial
condition of the Company.
Development Stage Company; Limited Operating History and Revenues;
Historical and Anticipated Losses and Working Capital Deficits. The Company was
organized in December 1997 and has a very limited operating history upon which
an evaluation of the Company's future performance and prospects can be made. The
Company is a development stage company and has not yet sold any products or
services on a commercial basis. The Company's prospects must be considered in
light of the risks, expenses, delays, problems and difficulties frequently
encountered in the establishment of a new business in an emerging and evolving
industry. Since inception, the Company has generated no revenues and has
incurred significant losses resulting in a working capital deficit. Losses are
continuing through the date of this Registration Statement. Inasmuch as the
Company will continue to have a high level of operating expenses and will be
required to make significant up-front expenditures in connection with the
proposed development of its business, the Company may continue to incur losses
for the next 12 months and until such time, if ever, as the Company is able to
generate sufficient revenues to finance its operations and the costs of
continuing expansion. There can be no assurance that the Company will be able to
generate significant revenues or achieve profitable operations. See the
financial statements and the notes thereto included elsewhere in this
Registration Statement.
Need for Additional Financing. The Company may determine, depending
upon the opportunities available to it, to seek additional debt or equity
financing to fund the cost of continuing expansion. To the extent that the
Company incurs indebtedness or issues debt securities, the Company will be
subject to risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. There can be no assurance
that additional financing will be available to the Company on commercially
reasonable terms or at all. If the Company is unable to obtain
-16-
additional financing, its ability to meet its current plans for expansion could
be materially adversely affected.
Risks Relating to the Company's Business
New Industry; Uncertainty of Market Acceptance. As is typically the
case in an emerging industry, demand and market acceptance for newly introduced
services and products are subject to a high level of uncertainty.
Risks Associated with Growth Strategy and Rapid Expansion. The Company
is a development stage company and has not yet sold any products or services on
a commercial basis. Implementation of the Company's business plan will be
substantially dependent on, among other things, the Company's ability to hire
and retain skilled management, financial, marketing and other personnel and
successfully manage growth (including monitoring operations, controlling costs
and maintaining effective quality controls). The Company's plans are subject to
change as a result of a number of factors, including progress or delays in the
development of its technologies, changes in market conditions and competitive
factors. There can be no assurance that the Company will be able to successfully
implement its business strategy or otherwise expand its operations.
Competition. The market for the Company's products and services is
highly competitive and subject to rapid technological change. The Company is
using third-party technologies and products that, in different forms, have
already been introduced and are being used in the marketplace. Competitors may
quickly deploy products and e-commerce technology that could limit the Company's
expansion. The Company expects competition to increase in the future. Many of
the Company's potential competitors have substantially greater financial,
technical and marketing resources than the Company. Increased competition could
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully.
Attraction and Retention of Key Personnel. The Company's ability to
continue to develop and market its services and products depends, in large part,
on its ability to attract and retain qualified personnel. Competition for such
personnel is intense and no assurance can be given that the Company will be able
to retain and attract such personnel.
Limited Intellectual Property Protection; Risk of Third Party Claims of
Infringement. The Company's success is dependent in part on intellectual
property rights, including information technology, some of which is proprietary
to the Company. The Company relies on a combination of nondisclosure and other
contractual arrangements, technical measures, trade secret and trademark laws to
protect its proprietary rights. The Company does not presently hold any patents
for its existing products or services and presently has no patent applications
pending. The Company generally enters into confidentiality agreements with its
employees and attempts to limit access to and distribution of proprietary
information. There can be no assurance that the steps taken by the
-17-
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use or take
appropriate steps to enforce intellectual property rights. In addition, there
can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. Further, the laws of many foreign countries do not protect
the Company's intellectual property rights to the same extent as the laws of the
United States. The failure of the Company to protect its proprietary information
could have a material adverse effect on the Company's business, financial
condition and results of operations.
From time to time, third parties may assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies that
are used by the Company. Litigation may be necessary to defend against claimed
infringements of the rights of others or to determine the scope and validity of
the proprietary rights of others. Future litigation may also be necessary to
enforce and protect trade secrets and other intellectual property rights owned
by the Company. Any such litigation could be costly and cause diversion of
management's attention, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. Adverse
determinations in such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities (including
possible indemnification of its customers), require the Company to secure
licenses from third parties or prevent the Company from the manufacturing or
selling its products or services, any one of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has not conducted a formal patent search relating generally to the
technology used in its products or services. In addition, since patent
applications in the United States are not publicly disclosed until the patent
issues and foreign patent applications generally are not publicly disclosed for
at least a portion of the time that they are pending, applications may have been
filed which, if issued as patents, would relate to the Company's products or
services. Software comprises a substantial portion of the technology in the
Company's products. The scope of protection accorded to patents covering
software-related inventions is evolving and is subject to a degree of
uncertainty that may increase the risk and cost to the Company if the Company
discovers the existence of third party patents related to its software products
or if such patents are asserted against the Company in the future. Patents have
been granted recently on fundamental technologies in software, and patents may
issue which relate to fundamental technologies incorporated into the Company's
products or services.
Impact of Technological Change. While the Company employs proprietary
software technology and algorithms and conducts ongoing research and
development, the future success of the Company will depend in part upon its
ability to keep pace with advancing technology, evolving industry and changing
customer requirements in a cost-effective manner. There can be no assurance that
the Company's proprietary software technology and algorithms will not be
rendered obsolete by other technology incorporating technological advances
designed by competitors that the Company is unable to incorporate into its
products or services in a timely manner.
The market for the Company's products and services is characterized by
rapidly changing technologies. The rapid development of new technologies
increases the risk that current or new
-18-
competitors could develop products or services that would reduce the
competitiveness of the Company's products or services. The Company's success
will depend to a substantial degree upon its ability to respond to changes in
technology and customer requirements. This will require the timely selection,
development and marketing of new products or services and enhancements on a
cost-effective basis. The development of new, technologically advanced products
or services is a complex and uncertain process, requiring high levels of
innovation. The introduction of new and enhanced products or services also
requires that the Company manage transitions from older products or services in
order to minimize disruptions. There can be no assurance that the Company will
be successful in developing, introducing or managing the transition to new or
enhanced products or services or that any such products or services will be
responsive to technological changes or will gain market acceptance. The
Company's business, financial condition and results of operations would be
materially adversely affected if the Company were to be unsuccessful, or to
incur significant delays, in developing and introducing such new products,
services or enhancements.
Other Risks
Dividends Unlikely. The Company has not paid cash dividends on its
Common Stock since its inception. The Company does not intend to pay cash
dividend on its Common Stock in the foreseeable future so that it may reinvest
earnings, if any, in the development of its business.
No Assurance of Public Market; Possible Volatility of Market. There has
been only a limited public trading market for the Common Stock on the OTC
Bulletin Board. There can be no assurance that a regular trading market for the
Common Stock will ever develop or that, if developed, it will be sustained. The
market price of the Common Stock may be highly volatile as has been the case
with the securities of many emerging companies. Factors such as the Company's
operating results and announcements by the Company or its competitors of new
products or services may significantly impact the market price of the Company's
securities. In addition, in recent years, the stock market has experienced a
high level of price and volume volatility and market prices for the securities
of many companies have experienced wide fluctuations not necessarily related to
the operating performance of such companies.
Foreign Exchange. The Company receives the proceeds from its private
placements in U.S. dollars. It is the Company's practice to maintain all excess
cash in U.S. dollars and to invest these funds in short term, interest bearing,
U.S. dollar deposits. The Company converts U.S. dollars to Canadian dollars on
an as needed basis to meet Canadian dollar expenses. The Company incurs a
significant portion of its expenses in Canadian dollars and therefore is exposed
to fluctuations in the foreign exchange rate between the Canadian and U.S.
dollar.
Year 2000. The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
-19-
something other than a date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, their
impact on the Company's operations and financial reporting may range from minor
errors to significant systems failure that could materially affect the Company's
ability to conduct normal business operations. It is currently not possible to
be certain that all aspects of the Year 2000 issue affecting the Company,
including those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
Corporate Governance Risks
Substantial Shares of Common Stock Reserved for Issuance. The Company
has reserved 2,250,000 shares of Common Stock for issuance pursuant to the
Company's 1998 Stock Option Plan, pursuant to which options to purchase
2,075,000 shares of Common Stock at an exercise price of $1.00 per share are
outstanding. The Company has also reserved 2,000,000 shares of Common Stock for
issuance pursuant to the Company's 1999 Stock Option Plan pursuant to which
options to purchase 1,180,500 shares of Common Stock at an exercise price of
$7.00 per share have been granted. The Company has also issued options outside
such plans to purchase 750,000 shares of Common Stock at an exercise price of
$7.00 per share and warrants to purchase an additional 295,000 shares of Common
Stock at an exercise price of $7.00 per share. The existence of the outstanding
options and warrants may hinder future financings by the Company. In addition,
the exercise of any such options or warrants in the future could dilute the net
tangible book value of the Company's Common Stock. Further, the holders of such
options and warrants may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.
Authorization and Discretionary Issuance of Preferred Stock. The
Company is authorized to issue up to 100,000,000 shares of preferred stock,
$.001 par value per share (the "Preferred Stock"). The Preferred Stock may be
issued in one or more series, on such terms and with such rights, preferences
and designations as the Board of Directors of the Company may determine, without
action by stockholders. No shares of Preferred Stock are currently outstanding.
However, the issuance of any Preferred Stock could adversely affect the rights
of the holders of Common Stock, and therefore reduce the value of the Common
Stock. In particular, specific rights granted to future holders of Preferred
Stock could be used to restrict the Company's ability to merge with or sell its
assets to a third party, thereby preserving control of the Company by present
owners.
Forward Looking Statements. This Registration Statement contains
forward-looking statements. Investors are cautioned that all forward-looking
statements involve risks and uncertainty. Although the Company believes 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
Registration Statement will prove to be accurate. In light of the significant
uncertainties inherent in the forward- looking statements included herein, the
inclusion of such information should not be regarded as a
-20-
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 2 FINANCIAL INFORMATION.
The selected financial data set forth below are derived from the
financial statements of the Company included elsewhere in this Registration
Statement and are qualified by reference to and should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Registration Statement. The financial statements of
the Company as of and for the three months ended March 31, 1999 and March 31,
1998, the year ended December 31, 1998 and the period from July 29, 1997
(inception) to December 31, 1997 have been audited by Ernst & Young LLP,
independent certified public accountants. The information as of and for the
three months ended June 30, 1999 and 1998 is unaudited and, in the opinion of
management contains all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position and results of operations at such dates and for such periods. The
results for the three months ended June 30, 1999 are not necessarily indicative
of the results for the full year. The historical results for the periods ended
December 31, 1997 and 1998, March 31, 1998 and June 30, 1998 are those of VPS.
The historical results are not necessarily indicative of the results of
operations to be expected in the future.
Selected Financial Data
Period
from July
Year 29, 1997
ended (inception)
December to
Three months ended Three months ended 31, December
June 30, 1999 June 30, 1998 March 31, 1999 March 31, 1998 1998 31, 1997
------------- ------------- -------------- -------------- ---- --------
Statement of Operations
Data:
Revenues............. $ 23,157 $ 4,478 $ 102 $ 43,446 $ 43,446 $ 3,508
Expenses............. 9,151,954 3,088,399 47,672 63,067 467,318 99,669
Net loss for the 8,930,192 3,083,921 47,570 19,621 423,872 96,161
period...............
Net loss per share... $0.45 $0.27 $0.16 $478.56 $0.55 $2,345
Dividends paid....... - - - - - -
Balance Sheet Data:
Total assets......... 28,936,817 4,025,076 15,708 47,510 143,467 28,604
-21-
Management's Discussion and Analysis of Results of Operations and Financial
Condition
The consolidated financial statements of the Company are the continuing
financial statements of VPS, a development stage company and an Ontario
corporation incorporated on July 29, 1997. VPS had a 100% interest in, and
subsequently merged with, Cheltenham Technologies Corporation ("Cheltenham
Technologies"), an Ontario corporation. VPS has a 100% interest in Cheltenham
Interactive Corporation ("Cheltenham Interactive"), an Ontario corporation, and
Cheltenham Technologies (Bermuda) Corporation ("Cheltenham Bermuda"), a Barbados
corporation. On January 29, 1999, VPS 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. InfoCast
Corporation, InfoCast Canada, VPS, Cheltenham Technologies, Cheltenham
Interactive and Cheltenham Bermuda are collectively referred to in this section
as the "Company."
The following discussion should be read in conjunction with the
Company's historical financial statements and notes thereto included elsewhere
in this Registration Statement. All figures included in this Management's
Discussion and Analysis of Results of Operations and Financial Condition are
expressed in U.S. dollars unless otherwise noted.
The following discussion includes forward looking statements. Such
forward looking statements involve risks and uncertainties, including among
other things, statements regarding the Company's anticipated costs and expenses.
Such forward looking statements contain, but are not limited to, the words
"expects," "anticipates," "intends," "predicts" and similar language. The
Company's actual results may differ significantly from those projected in the
forward looking statements. Factors that might cause future results to differ
materially from those described in the forward looking statements include, but
are not limited to, those discussed in the section entitled "Risk Factors."
Overview
The Company has incurred operating losses since its inception in July
1997. The Company has sustained itself through the sale of its Common Stock and
warrants to purchase Common Stock in a series of private placements. There can
be no assurance that such funds will be available in the future if additional
capital is required.
The Company is a development stage company engaged in the research and
development of information delivery technologies. The Company, an application
service provider ("ASP"), is in the business of electronic content delivery and
information management to meet the high-speed information needs of global
corporate consumers. The Company uses a sophisticated architecture technology
that brings reliability and scalability to applications distributed across a
network. The Company's network and strategic alliances will provide the
essential communication link between
-22-
information sources and information users worldwide. The Company will link
networks and infrastructures so that information can be delivered in real-time
to anyone, anywhere, in any format - data, voice or video. This technology will
provide the infrastructure that enables and enhances applications such as the
Company's initiatives in Distributed Learning, Telework, VCC Solutions and
Application Hosting. The Company has not yet sold any of these products or
services on a commercial basis and thus has not generated any revenue to date
from these products and services.
The Company acquired HomeBase in May 1999 in exchange for 3,400,000
shares of InfoCast Canada, which shares are exchangeable into Common Stock of
the Company. The Homebase acquisition provided the Company with the core
technology for its network, the Information Hub, or i-Hub. The acquisition also
provided the Telework and Application Hosting initiatives to the Company, both
of which will be hosted on the i-Hub. The Company's VCC solution and Distance
Learning library will also be hosted on the i-Hub platform
The Company is in the process of completing the acquisition of ACT.
This transaction is subject to satisfactory due diligence and is expected to
close in second quarter of the Company's current fiscal year ending March 31,
2000. Consideration for this acquisition will be 750,000 shares of InfoCast
Canada, which shares will be exchangeable into shares of Common Stock of the
Company, and the assumption of approximately $670,000 of debt. The ACT
acquisition will provide the Company with in-house technical expertise used in
the conversion of traditional learning materials into an electronic format and
Integrator-Pro, a software tool that manages performance improvement data and
delivers analysis, design, decision support and resource management
functionalities. ACT's operations are located in New Brunswick, Canada, which
will allow the Company to benefit from various government research and
development and employment grants and loans.
The Company changed its fiscal year end from December 31 to March 31.
Therefore financial statements have been prepared for the three month transition
period ended March 31, 1999.
Results of Operations
Three months ended June 30, 1999 vs. three months ended June 30, 1998
Consulting income decreased from $102 for the three months ended June
30, 1998 to zero for the three months ended June 30, 1999. This decrease is due
to the Company's decision to no longer provide computer programming services.
Interest income increased from zero for the three months ended June 30,
1998 to $23,157 for the three months ended June 30, 1999. The proceeds received
from the private placements in 1999 were invested in short term deposits, which
generated interest income for the Company during the period ended June 30, 1999,
consistent with the Company's investment policy discussed under "Risk Factors -
Foreign Exchange" elsewhere in this Registration Statement.
-23-
General, administrative and selling expenses increased from $17,767 for
the three months ended June 30, 1998 to $1,936,815 for the three months ended
June 30, 1999. The consolidation of the operations of Homebase for the period
May 13, 1999 to June 30, 1999 accounted for $233,000 of the increase. The
Company incurred expenses of $286,000 related to the Homebase acquisition in the
form of incentive compensation paid to three key officers of Homebase. The
Company had approximately six more employees and 10 additional consultants in
the three month period ended June 30, 1999 than for the same period ended June
30, 1998, contributing approximately $215,000 to the increase in expenses.
Investor relations costs of $325,000 were incurred for the three month period
ended June 30, 1999, $250,000 of which was spent on national media consulting
services and financial community investor relations consulting services.
Additional rent expenses of $36,000 were incurred for the two U.S. offices that
were not open in June 1998 and the expanded Toronto office space. The Company
expensed $449,998 for warrants issued for services during the three month period
ended June 30, 1999 and expensed an additional $157,923 related to Common Stock
issued for services during the three month period ended June 30, 1999.
Stock option compensation expense increased from zero for the three
months ended June 30, 1998 to $5,829,647 for the three months ended June 30,
1999. This increase is due to the amortization of the deferred compensation
amount resulting from the grant of stock options to various individuals involved
in the management of the Company. Options to purchase 2,250,000 shares of Common
Stock were granted on February 8, 1999 at a price of $1.00 per share. These
options expire three years from the date of grant and are subject to a vesting
period of at least six months. At June 30, 1999, 2,075,000 of the options
granted on February 8, 1999 were outstanding. On June 1, 1999, the Company
granted options to purchase 1,180,500 shares of Common Stock at an exercise
price of $7.00. These options are subject to vesting periods ranging from
immediate vesting to six months and expire five years from the date of grant.
Research and development expenses increased from $28,964 for the three
months ended June 30, 1998 to $730,657 for the three months ended June 30, 1999.
The majority of this increase is due to continued efforts to develop and expand
the Company's product offerings. The Company incurred expenses of approximately
$339,000 for services rendered by ACT for the distance learning project and the
CCLS On-Line joint venture during the three months ended June 30, 1999.
Amortization expenses increased from zero for the three months ended
June 30, 1998 to $645,873 for the three months ended June 30, 1999. Amortization
of the acquired intellectual property and goodwill resulting from the
acquisition of Homebase accounted for the majority of the increase in the
amortization expense for the period.
Depreciation expenses increased from $941 for the three months ended
June 30, 1998 to $8,962 for the three months ended June 30, 1999. This increase
is a result of the acquisition of additional capital assets between July 1, 1998
and June 30, 1999.
Deferred income taxes increased from zero for the three months ended
June 30, 1998 to $198,605 for the three months ended June 30, 1999 as a result
of the drawdown of the
-24-
deferred income tax liability created by the purchase of Homebase by the Company
in respect of the difference in the tax and accounting basis of various
intellectual property assets.
Three months ended March 31, 1999 compared to three months ended March 31, 1998
The three month period ended March 31, 1999 is a transition period in
respect of the change in the Company's fiscal year end from December 31 to March
31.
Consulting income decreased from $43,446 for the three months ended
March 31, 1998 to zero for the three months ended March 31, 1999. This decrease
is due to the Company's decision to no longer provide computer programming
services.
Interest income increased from zero for the three months ended March
31, 1998 to $4,478 for the three months ended March 31, 1999. The proceeds
received from the March 1999 private placement were invested in short term
deposits, which generated interest income for the Company during the period
ended March 31, 1999. It is the Company's policy to invest all excess cash in
U.S. dollar short term interest bearing term deposits.
General, administrative and selling expenses increased from $42,494 for
the three months ended March 31, 1998 to $635,334 for the three months ended
March 31, 1999. The majority of this increase is due to the expansion of the
Company, including an increase in the number of employees and consultants
providing services to the Company, additional rent expenses of approximately
$40,000 for the two offices in the United States, opened in late 1998 and early
1999, and the additional space required in the Toronto office and additional
travel expenses of approximately $85,000. As a result of the January 1999
reverse merger, the Company incurred investor relations costs of $151,000 during
the three month period ended March 31, 1999.
Stock option compensation expense increased from zero for the three
months ended March 31, 1998 to $2,256,938 for the three months ended March 31,
1999. This increase is due to the amortization of the deferred compensation
amount resulting from the grant of 2,250,000 stock options under the Company's
1998 Stock Option Plan to various individuals involved in the management of the
Company. These stock options were granted on February 8, 1999 at a price of
$1.00 per share, expire three years from the date of grant and are subject to a
vesting period of at least six months. As of April 19, 1999, 175,000 of these
stock options were canceled due to the termination of certain individuals and
the renegotiation of employment terms, leaving a balance outstanding of
2,075,000 options.
Research and development expenses increased from $19,703 for the three
months ended March 31, 1998 to $162,914 for the three months ended March 31,
1999. The majority of this increase is due to the continued development of the
Company's technology.
Interest and loan fees expenses increased from zero for the three
months ended March 31, 1998 to $23,562 for the three months ended March 31,
1999. The interest and loan fees resulted
-25-
from a short term loan received by the Company and repaid within the three month
period ended March 31, 1999.
Amortization expenses increased from zero for the three months ended
March 31, 1998 to $4,144 for the three months ended March 31, 1999. This
increase is due to the amortization of certain intellectual property rights
related to remote banking software acquired from a company owned by a
shareholder and former officer of the Company.
Depreciation expenses increased from $870 for the three months ended
March 31, 1998 to $5,507 for the three months ended March 31, 1999. This
increase is a result of the acquisition of additional capital assets from April
1, 1998 to March 31, 1999.
Year ended December 31, 1998 compared to the 156 day period ended December 31,
1997
Consulting income increased from $3,508 for the 156 day period ended
December 31, 1997 to $43,446 for the year ended December 31, 1998. This increase
is due to the timing of the provision of one-time computer programming services,
as the Company began providing these services at the end of 1997 and continued
to provided these services in the first calendar quarter of 1998. In early 1998
the Company discontinued providing these consulting services.
General, administrative and selling expenses increased from $47,954 for
the 156 day period ended December 31, 1997 to $375,302 for the year ended
December 31, 1998. This increase is due to the expenses being incurred for the
full year ended December 31, 1998 compared to a 156 day period ended December
31, 1997 and the continuing expansion of business operations. Consulting fees
were higher in 1998 as the Company engaged additional consultants to assist in
building the management team and enhancing the business model and infrastructure
of the Company. The Company incurred higher legal costs in 1998 as a result of
legal services rendered during 1998 for the reverse takeover transaction, as
well as for the Homebase acquisition, both of which were completed in 1999.
Research and development expenses increased from $51,257 for the 156
day period ended December 31, 1997 to $88,180 for the year ended December 31,
1998. This increase is due to the expenses being incurred for the full year
ended December 31, 1998 compared to a 156 day period ended December 31, 1997 and
the continuing expansion of the Company's research and development efforts.
Depreciation expenses increased from $458 for the 156 day period ended
December 31, 1997 to $3,836 for the year ended December 31, 1998. This increase
is a result of depreciation being incurred for the full year ended December 31,
1998 compared to a 156 day period ended December 31, 1997 and the acquisition of
additional capital assets during the year ended December 31, 1998.
-26-
Liquidity and Capital Resources
Inception to June 30, 1999
As at June 30, 1999, the Company had cash and cash equivalents of
$1,493,205 and had a working capital deficit of $84,352. The Company's cash and
cash equivalent position has been generated through a series of equity offerings
net of development stage expenditures. The Company has not yet generated any
significant revenues.
From its inception on July 29, 1997 to January 29, 1999, VPS issued
3,624,100 shares of Common Stock for cash proceeds of Cdn $3,732. Pursuant to
the reverse takeover transaction on January 29, 1999, the shareholders of VPS
sold their 100% interest in VPS to the Company in consideration for 1,500,000
shares of InfoCast Canada, which shares are exchangeable into Common Stock of
the Company for no additional consideration. Such exchangeable shares have been
deemed as shares of Common Stock of the Company because they are the economic
equivalent of the Company's Common Stock. At the time of the reverse takeover,
the Company (formerly Grant Reserve Corporation) had 13,580,000 shares of Common
Stock outstanding which continued as shares of Common Stock of the continuing
entity. Subsequent to the reverse takeover and up to June 30, 1999, the Company
issued 3,023,333 shares of Common Stock at $1.50 per share in a private
placement in March 1999, 60,000 shares of Common Stock in consideration for
consulting services March 1999 and 420,000 shares of Common Stock at $5.00 per
share in a private placement in June 1999. The Company has raised $6,398,000
from these private placements, net of share issuance costs.
From its inception, the Company has used $3,328,000 for operating
activities before changes in non-cash working capital balances mainly as a
result of general and administrative and research and development expenditures,
net of incidental revenues. The Company used a further $298,000 for the purchase
of capital assets and software licenses, $975,000 on the purchase of
distribution rights and $586,000 on the placement of deposits.
The Company relied on term loans from shareholders, directors and
officers during the period from its inception to the completion of the March
1999 private placement to fund its operations. These loans were repaid as at
June 30, 1999 from the proceeds of the private placements.
The Company is currently raising funds through a private placement of
its shares of Common Stock. Gross proceeds from this private placement are
expected to be approximately $13,750,000. Through August 31, 1999, the Company
received $6,050,000 in consideration for 1,100,000 shares of Common Stock. The
Company may issue up to an additional 1,400,000 shares of Common Stock for an
aggregate offering price of $7,700,000 in such offering. The Company expects to
use these proceeds for the following:
o The Company plans to continue to invest in the research and
development of its products and services related to the
acquisition of Homebase and the pending
-27-
completion of the acquisition of ACT and anticipates spending
approximately $4,800,000 and $2,400,000 respectively on these
efforts over the next 12 months. The Company anticipates that
it will begin earning revenue and collecting cash from sales
of the Homebase and ACT products and services, namely
application outsourcing, Telework and Distance Learning, in
the third quarter of the current fiscal year which will help
fund the cash requirements of these two divisions but there
can be no assurance that it will do so.
o Upon completion of the pending acquisition of ACT, the Company
has agreed to service the outstanding debt of ACT, which will
require approximately $670,000 over the next 12 months.
o The Company entered into an agreement with ITC in June 1999
whereby the Company will become ITC's exclusive distance
learning technology partner for the delivery of educational
material for the state of California for consideration of
$2,000,000, payable in three installments, the first of which
was paid in August and the remaining of which will be paid in
September and October 1999.
o The Company will contribute approximately $300,000 over the
next six months to fund the marketing and technical support
efforts of the CCLS On-Line joint venture, of which it is a
50% owner. The Company has entered into an agreement with Call
Center Learning Solutions Inc. to form a new corporation, CCLS
On-Line. This new corporation will develop, own and exploit
courseware in an electronic format capable of electronic
distribution.
o The Company will use approximately $1,000,000 over the next 12
months to enhance and complete its existing VCC technologies.
o The Company will use the remaining capital resources to fund
possible complementary acquisitions, develop new technologies,
and other corporate and working capital needs.
The Company believes that its existing cash resources, as well as the
cash received and expected from the current private placement and the cash
anticipated to be generated from sales of the Company's products and services
will be sufficient to meet its short term working capital requirements for at
least the next 12 months.
On a long term basis, the Company may need to raise additional funds
via private or public financings, strategic or other relationships because of
additional undertakings of the Company or because revenues generated from the
sale of the Company's products and services may be insufficient to satisfy the
Company's cash requirements.
-28-
Outlook
The Company's strategy is to be a leader in the ASP marketplace by
providing strategic IT enterprise services and applications to mid and large
sized organizations on its i-Hub platform via strategic relationships with Sun
Microsystems, network carriers, software vendors and clients. The Company
believes it will capture market share by initially focusing on three markets,
Distance Learning, VCC and Telework. The Company feels it is strategically
positioned to gain business velocity through its dominance in the selected
vertical markets, with a view to providing an expanding suite of industry
leading applications. The Company is anticipating that it will begin to generate
revenue in the third quarter of the current fiscal year, but there can be no
assurance that it will do so. This expected revenue stream will contribute to
the existing cash resources.
Year 2000 Compliance
The Company's business depends on the operation of numerous systems
that could potentially be impacted by Year 2000 related problems. Due to the
Company's early stage of development, all critical hardware and software has
been recently acquired or developed and is likely to be Year 2000 ready. The
Company made the appropriate enquiries prior to acquiring its hardware and
software and developed its products on platforms that are Year 2000 ready.
There has been no expenditure to date by the Company related to
becoming Year 2000 ready. The Company expects that any costs it incurs to test
for Year 2000 readiness will consist primarily of the salaries of those
employees who are assigned the tasks of testing for Year 2000 readiness and does
not anticipate those salary costs to be material. See also "Risk Factors - Year
2000 Issues."
-29-
ITEM 3 PROPERTIES.
The Company's operational headquarters is located in 2,190 square feet
of leased office space in Chicago, Illinois and it has additional offices
located in 5,404 square feet of leased office space in Toronto, Ontario. The
Company's lease in Toronto, Ontario expires in November 2000 and its lease in
Chicago, Illinois expires in March 2002. The Company and its subsidiaries also
lease other facilities that are not material to the Company's business. The
Company believes that its existing facilities are adequate for its needs for the
foreseeable future and that if additional space is needed, it would be available
on favorable terms.
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information as of August 31,
1999 with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
each executive officer of the Company, (iii) each Director of the Company and
(iv) all Directors and executive officers as a group.
Name and Address of Number of Shares Percentage
Beneficial Owner(1) Beneficially Owned Class(2)
------------------- ------------------ --------
Darcy Galvon 617,000(3) 3.28%
A. Thomas Griffis 1,244,997(4) 6.76%
James Leech 550,000(5) 2.98%
Michael Sheehan 300,000(6) 1.64%
James Hines 730,000(7) 3.99%
Edward Turner 263,607(8) 1.44%
Michael Gruber 270,000(9) 1.48%
George Shafran 350,000(10) 1.91%
Alex Walsh 500,000(11) 2.72%
Jennifer Scoffield 25,000(12) *
Treetop Capital Inc. 9,000,000(13) 49.47%
Don Jeffrey 2,404,749(14) 12.58%
Sheridan Reserve
Incorporated 1,000,000 5.50 %
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Name and Address of Number of Shares Percentage
Beneficial Owner(1) Beneficially Owned Class(2)
------------------- ------------------ --------
All officers and 4,850,604 24.38%
directors as a group
(10 persons)
- -----------------------
* Less than one percent (1%) of outstanding Common Stock.
(1) Except as otherwise indicated, the address for each of the named
individuals is c/o InfoCast Corporation, 1 Richmond Street West, Suite
902, Toronto, Ontario, Canada M5H 3W4.
(2) Except as otherwise indicated, the stockholders listed in the table
have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. Pursuant to the rules and
regulations of the Securities and Exchange Commission, shares of Common
Stock that an individual or group has a right to acquire within sixty
(60) days pursuant to the exercise of warrants or options are deemed to
be outstanding for the purposes of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person
shown in the table.
(3) Represents (i) 517,000 shares to be issued in exchange for outstanding
exchangeable shares of VPS and (ii) 100,000 shares issuable upon
exercise of options granted to Mr. Galvon under the 1998 Stock Option
Plan.
(4) Represents (i) 124,997 shares to be issued in exchange for outstanding
exchangeable shares of VPS by Griffis International Limited, of which
Mr. Griffis, the Chairman of the Board of the Company, owns 100%, (ii)
100,000 shares issuable upon exercise of options granted to Mr. Griffis
under the 1998 Stock Option Plan and (iii) 1,020,000 shares held by
Treetop Capital Inc. ("Treetop"), of which Griffis International
Limited is a shareholder. Treetop expects to distribute in the near
future the shares it holds in the Company on a pro rata basis to
Treetop's shareholders. VPS was acquired by the Company on January 29,
1999. Such exchangeable shares are exchangeable at any time for the
shares of Common Stock of the Company on a share for share basis.
(5) Represents (i) 250,000 shares issuable upon exercise of options granted
to Mr. Leech in June 1999 and (ii) 300,000 shares held by Treetop of
which Mr. Leech is an optionholder. Treetop expects to distribute in
the near future the shares it holds in the Company on a pro rata basis
to Treetop's shareholders.
-31-
(6) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Sheehan under the 1998 Stock Option Plan and (ii) 200,000 shares
held by Treetop, of which Mr. Sheehan is a shareholder. Treetop expects
to distribute in the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
(7) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Hines under the 1998 Stock Option Plan and (ii) 630,000 shares
held by Treetop, of which Mr. Hines is a shareholder. Treetop expects
to distribute in the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
(8) Represents (i) 83,607 shares to be issued in exchange for outstanding
exchangeable shares of VPS by Mr. Turner and (ii) 180,000 shares held
by Treetop, of which Mr. Turner is a shareholder. Treetop expects to
distribute in the near future the shares it holds in the Company on a
pro rata basis to Treetop's shareholders. VPS was acquired by the
Company on January 29, 1999. Such exchangeable shares are exchangeable,
at any time for the shares of Common Stock of the Company on a share
for share basis.
(9) Represents 270,000 shares held by Treetop, of which Mr. Gruber is a
shareholder. Treetop expects to distribute in the near future the
shares it holds in the Company on a pro rata basis to Treetop's
shareholders.
(10) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Shafran under the 1998 Stock Option Plan and (ii) 250,000 shares
held by Treetop, of which Mr. Shafran is a shareholder. Treetop expects
to distribute in the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
(11) Represents (i) 200,000 shares issuable upon exercise of options granted
to Mr. Walsh under the 1999 Stock Option Plan and (ii) 300,000 shares
held by Treetop, of which Mr. Walsh is a shareholder. Treetop expects
to distribute in the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
(12) Represents 25,000 shares issuable upon exercise of options granted to
Ms. Scoffield under the 1999 Stock Option Plan.
(13) Represents shares to be distributed to its shareholders on a pro rata
basis in the near future.
(14) Represents (i) 825,749 shares to be issued in exchange for outstanding
exchangeable shares of VPS by Mr. Jeffrey, (ii) 100,000 shares issuable
upon exercise of options granted to Mr. Jeffrey under the 1998 Stock
Option Plan, and (iii) 1,479,000 shares held by Treetop, of which Mr.
Jeffrey or his wholly-owned company is a shareholder. VPS was acquired
by the Company on January 29, 1999. Such shares are exchangeable, at
any time for the shares of Common Stock of the Company on a share for
share basis. Treetop expects to distribute in
-32-
the near future the shares it holds in the Company on a pro rata basis
to Treetop's shareholders.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of the Company, and their ages and
positions with the Company will be as follows:
Name Age Position
---- --- --------
Darcy Galvon 43 Co-Chairman of the Board, Director
A. Thomas Griffis 58 Co-Chairman of the Board, Director
James Leech 52 President, CEO and Director
Jennifer Scoffield 29 Vice President, Finance & Administration
Michael Sheehan 58 Vice President, Virtual Call Center, Director
James Hines 34 Executive Vice President, Director
Alex "Sandy" Walsh 33 Chief Technology Officer
Edward Turner 57 Vice President - Business Development
Michael Gruber 32 Vice President - Marketing
George Shafran 73 Director
The officers of the Company are elected by the Board of Directors at
the first meeting after each annual meeting of the Company's stockholders, and
hold office until their death, until they resign or until they have been removed
from office. No committees of the Board of Directors have been established to
date.
The following is a brief summary of the background of each director and
executive officer of the Company:
Mr. Galvon has been Co-Chairman and a director of the Company since May
13, 1999. From 1995 to the present, Mr. Galvon served as a director of Sun
Computer Systems Inc. Alberta Ltd. and HomeBase Work Solutions Ltd., which was
acquired by the Company in May 1999, and is currently a subsidiary of the
Company. Mr. Galvon is also a director of Facet Petroleum Solutions, Inc., with
which HomeBase Work Solutions, Inc. has entered into a licensing and
distribution agreement. He is also Chairman of the Board of HomeBase.
Mr. Griffis has been the Chairman of the Board and a director of the
Company since January 12, 1999 and a Co-Chairman since May 13, 1999. In 1986,
Mr. Griffis founded and is the sole owner of Griffis International Limited
("GIL"), a management consulting and business development firm.
Mr. Leech has been President, Chief Executive Officer and a director of
the Company since September 4, 1999. From 1996 until September 1999, Mr. Leech
was Vice Chairman and Director
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at Kasten Chase Applied Research Limited, where he was responsible for corporate
strategy, finance, administration and production. From 1993 to 1996, Mr. Leech
was President, Chief Executive Officer and Director of Disys Corporation, which
was later merged into Kasten Chase Applied Research Limited.
Ms. Scoffield has been the Vice President, Finance and Administration
of the Company since July 7, 1999. From February 1997 to June 1999, Ms.
Scoffield held various positions at PRI Automation Inc. (formerly Promis Systems
Corporation Ltd.), most recently as Director, Financial Projects. From August
1996 to January 1997, Ms. Scoffield was Manager of Finance for Pet Valu Canada,
Inc. From August 1993 to August 1996, Ms. Scoffield was an accountant with Ernst
& Young in the Entrepreneurial Services group where she obtained her Chartered
Accountant designation.
Mr. Sheehan has been Vice President of Virtual Call Center since July
6, 1999 and a director of the Company since January 12, 1999. He served as the
Chief Executive Officer of the Company from January 12, 1999 to July 6, 1999.
From 1960 to 1998, Mr. Sheehan held a number of positions at AT&T, most recently
as Director of Call Center Solutions for AT&T Labs.
Mr. Hines has been the Executive Vice President of the Company since
September 4, 1999 and a director of the Company since January 12, 1999. He was
the President of the Company from January 12, 1999 to September 3, 1999. From
1996 to November 1998, Mr. Hines was President of Lasso Communications Inc., an
international affiliate of the Grey Worldwide Network of companies. From 1994 to
1996, Mr. Hines was Vice President of TransActive Communications Inc.
Mr. Walsh has been the Chief Technology Officer of the Company since
May 1999. From March 1998 to April 1999, Mr. Walsh was Director of Research and
Development - Business Intelligence Group for Hummingbird Communications Ltd.
From March 1994 to February 1998, Mr. Walsh was Project Lead for Andyne
Computing Limited of Kingston, Ontario. Prior to joining Andyne Computing
Limited, Mr. Walsh held various positions in the software design field.
Dr. Turner has been the Vice President - Business Development of the
Company since January 12, 1999. From 1996 to 1998, Dr. Turner held the position
of President of High Performance Group (USA), Inc. and from 1989 to 1996, Dr.
Turner was President of High Performance Group, Inc.
Mr. Gruber has been the Vice President - Marketing of the Company since
January 12, 1999. From July 1996 to November 1998, Mr. Gruber held the position
of Director of Sales at Lasso Communications Inc. Prior to July 1996, Mr. Gruber
was President of MG Pursuit Enterprises Inc.
Mr. Shafran has been a director of the Company since February 8, 1999.
Mr. Shafran has been the President of Geo. P. Shafran & Associates, Inc., a
management, marketing and investment consulting firm, for at least the last five
years. Mr. Shafran serves as Senior Consultant for The High Performance Group
and as an associate with the Technical Analysis Corporation. Mr. Shafran is
vice-chairman of The Heritage Bank and a director of NVR Mortgage, Missing Kids,
International and is chairman of the Advisory Board of the AAA Potomac. Mr.
Shafran also serves as a consultant to various other companies. He currently
serves on President Clinton's Legislative
-34-
Council of the U.S. Chamber of Commerce and on the Board of the National Capital
Chapter of the American Red Cross.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth certain information concerning
compensation for the year ended December 31, 1998 of the Company's Chief
Executive Officer. No executive officer received compensation of a least
$100,000 during the year ended December 31, 1998.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
Securities Long-Term
Name and Other Annual Underlying Incentive Plan All Other
Principal Position Salary($) Bonus($) Compensation($) Options($) Payouts($) Compensation($)
Michael Sheehan - - - - - -
- -------------------------
*Mr. Sheehan was the Company's Chief Executive Officer from January 12,
1999 to July 6, 1999. At the same time, Mr. William Wilson was the Company's
President. Prior to Mr. Sheehan's tenure as Chief Executive Officer, the Company
had no one serving in such position. Mr. Sheehan was paid $25,000 from January
12, 1999 to March 31, 1999 for his service as Chief Executive Officer. Mr.
Wilson received no compensation for his service as the Company's President. Mr.
Leech became the Company's new Chief Executive Officer on September 4, 1999. See
"Item 6 - Executive Compensation - Employment Agreements."
-35-
Stock Option Plans
In 1998, the Company adopted a stock option plan (the "1998 Stock
Option Plan") pursuant to which 2,250,000 shares of Common Stock have been
reserved for issuance upon the exercise of options designated as either (i)
options intended to constitute incentive stock options ("ISOs") under the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
stock options ("NQSOs"). ISOs and NQSOs may be granted to employees of the
Company.
The purpose of the 1998 Stock Option Plan is to encourage stock
ownership by officers and other key employees and consultants and advisors of
the Company. The 1998 Stock Option Plan is administered by the Board of
Directors of the Company. The Board, within the limitations of the 1998 Stock
Option Plan, determines the persons to whom options will be granted, the number
of shares to be covered by each option, the option purchase price per share and
the manner of exercise, and the time, manner and form of payment upon exercise
of an option.
The Company granted no stock options in the year ended December 31,
1998 and there were no option exercises in the year ended December 31, 1998. No
stock options were outstanding at December 31, 1998. As of August 31, 1999,
2,075,000 options were outstanding under the 1998 Stock Option Plan at an
exercise price of $1.00 per share.
The Company's 1999 Stock Option Plan (the "1999 Stock Option Plan") was
approved by the Board of Directors of the Company on April 1, 1999 and by the
stockholders of the Company on July 29, 1999. The purpose of the 1999 Stock
Option Plan is to create additional incentives for the Company's employees,
directors and others who perform substantial services to the Company by
providing an opportunity to purchase shares of the Common Stock pursuant to the
exercise of options granted under the 1999 Stock Option Plan. The Company may
grant options that qualify as incentive stock options under Section 422 of the
Code, and non-qualified stock options. Incentive stock options may be granted to
employees (including officers and directors who are employees). Non-qualified
stock options may be granted to employees, officers, directors, independent
contractors and consultants of the Company. As of August 31, 1999, 2,000,000
shares were reserved for issuance under the 1999 Stock Option Plan and 1,180,500
options had been granted at an exercise price of $7.00 per share.
The maximum number of shares that may be subject to options granted
under the 1999 Stock Option Plan to any individual in any calendar year may not
exceed 800,000 and the method of counting such shares shall conform to any
requirements applicable to "performance-based" compensation under Section 162(m)
of the Code. It is intended that compensation realized upon the exercise of an
option granted under the 1999 Stock Option Plan will thereupon be regarded as
"performance-based" under Section 162(m) of the Code and that such compensation
may be deductible without regard to the limits of Section 162(m) of the Code.
The Board of Directors or the Compensation Committee thereof (the
"Compensation Committee") composed of two or more non-management directors that
are "non-employee directors"
-36-
within the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code, is authorized to
administer the 1999 Stock Option Plan in a manner that complies with Rule 16b-3
under the Exchange Act. The Board of Directors or Compensation Committee
determines which eligible individuals are granted options and the terms of such
options including the exercise price, number of shares subject to the option and
the vesting and exercisability thereof; provided, the maximum term of an
incentive stock option granted under the 1999 Stock Option Plan may not exceed
five years.
The exercise price of an incentive stock option granted under the 1999
Stock Option plan must equal at least 100% of the fair market value of the
subject stock on the date of grant and the exercise price of all non-qualified
stock options must equal at least 80% of the fair market value of the subject
stock on the date of grant; provided, however, that if an option granted to the
Company's Chief Executive Officer or to any of the Company's other four most
highly compensated officers is intended to qualify as "performance-based"
compensation under Section 162(m) of the Code, the exercise price must equal at
least 100% of the fair market value of the subject stock on the date of grant.
With respect to any participant who owns more than 10% of the voting power of
the Common Stock of the Company, the exercise price of any option granted must
equal at least 110% of the fair market value on the date of grant. The aggregate
fair market value on the date of grant of the stock for which incentive stock
options are exercisable for the first time by an employee of the Company during
any calendar year may not exceed $100,000.
Options shall become exercisable at such times and in such installments
as the Board of Directors or Compensation Committee shall provide. Non-qualified
and incentive stock options granted under the 1999 Stock Option Plan are not
transferable other than by will or the laws of descent or distribution, and each
option that has not yet expired is exercisable only by the recipient during such
person's lifetime, or for 12 months thereafter by the person or persons to whom
the option passes by will or the laws of descent or distribution. The 1999 Stock
Option Plan may be amended at any time by the Board of Directors, although
certain amendments require stockholder approval. The 1999 Stock Option Plan will
terminate on April 8, 2009, unless earlier terminated by the Board of Directors.
Employment Agreement
James Leech is employed by the Company pursuant to an employment
agreement dated as of August 5, 1999. The agreement provides that Mr. Leech's
employment with the Company shall continue unless it is terminated by either
party in accordance with the terms of the agreement. The agreement provides for
an initial base salary of Cdn $330,000 per annum, a minimum bonus of Cdn $30,000
for the period ending March 31, 2000 and a minimum bonus of Cdn $50,000 for each
twelve-month period thereafter during the term of the agreement. Mr. Leech's
salary shall be annually reviewed and may be increased at the discretion of the
Board of Directors.
-37-
The agreement also provides that if Mr. Leech is terminated other than
for "cause" (as defined in the agreement), he shall receive the base salary
provided for under the agreement through the date of termination, plus a lump
sum payment equal to twice his annual base salary and bonus. He will also
receive his accrued bonus, continue to participate in certain benefit plans for
the 24 months following such termination and any options issued to Mr. Leech
will immediately vest. If Mr. Leech's employment is terminated due to death or
"disability" (as defined therein), he shall be paid the base salary under the
agreement until the date of termination and receive certain pro-rata bonus and
incentive payments, as well as any benefits accrued until the date of
termination and any options issued to Mr. Leech will immediately vest.
In the event Mr. Leech is terminated within 24 months of a "change of
control" of the Company (as defined in the employment agreement), Mr. Leech
shall receive a payment equal to three times his annual base salary and bonus.
He will also receive his accrued bonus, continue to participate in certain
benefit plans for 36 months following such termination and any options issued to
Mr. Leech will immediately vest.
In addition, on June 1, 1999, Mr. Leech was granted options to purchase
750,000 shares of Common Stock at an exercise price of $7.00. Such options are
currently exercisable as to 250,000 shares and become exercisable as to an
additional 250,000 shares on September 4, 2000 and as to the remaining 250,000
shares on September 4, 2001.
-38-
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the three months ended June 30, 1999, the Company paid
consulting fees to A. Thomas Griffis, the Co-Chairman of the Board of the
Company, who is the sole owner of Griffis International Limited, a shareholder
beneficially owning approximately 6.8% of the outstanding shares of the Company,
in the amount of Cdn $105,000 for services rendered. The Company will continue
to pay a monthly consulting fee of Cdn $15,000 while services are being
rendered.
During the three months ended June 30, 1999, the Company paid
consulting fees to Don Jeffrey, a shareholder beneficially owning approximately
12.6% of the outstanding shares of the Company, in the amount of Cdn $105,000.
The Company will continue to pay a monthly consulting fee of Cdn$15,000 while
services are being rendered.
During the three months ended June 30, 1999, the Company paid
consulting fees totaling $70,000 to George Shafran, a director of the Company,
during the three month period ended June 30, 1999. The Company will continue to
pay a monthly consulting fee of $10,000 while services are being rendered.
As at August 31, 1999, the Company paid incentive compensation fees to
Darcy Galvon, its Co-Chairman of the Board, of Cdn $140,000 in connection with
the Company's acquisition of Homebase.
From July 29, 1997 to March 31, 1999, the Company received cash
advances from View Media, a company controlled by Don Jeffrey, a shareholder
beneficially owning approximately 12.6% of the outstanding shares of the
Company, totaling approximately $109,000. The Company repaid such advances prior
to June 30, 1999.
Darcy Galvon, Co-Chairman of the Board of the Company, is a Director of
Facet Petroleum Solutions, Inc. Pursuant to a licensing and distribution
agreement dated March 30, 1999 between HomeBase and Facet Petroleum Solutions
Inc., Homebase acquired the exclusive right in the telework market to distribute
Facet Petroleum's Telework Operational Data Store software for a period of two
years in consideration for 6,910 common shares of HomeBase valued at $200,678.
Facet Petroleum received 25,000 shares of Common Stock of the Company in
exchange for the 6,910 Homebase shares as a result of the acquisition of
Homebase by the Company on May 13, 1998.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not currently involved in any material legal
proceedings. From time to time, however, the Company may be subject to claims
and lawsuits arising in the normal course of business.
-39-
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded on the OTC Bulletin
Board under the symbol "IFCC". Prior to changing its name to InfoCast
Corporation on December 31, 1998, the Company's Common Stock traded on the OTC
Bulletin Board under the symbol "GNRS." The following table sets forth the high
and low closing prices on the OTC Bulletin Board for the periods indicated, as
reported by the OTC Bulletin Board (as adjusted to reflect a 2 for 1 stock split
effected on October 20, 1998). The quotations are interdealer prices without
adjustment for retail markups, markdowns or commissions and do not necessarily
represent actual transactions. These prices may not necessarily be indicative of
any reliable market value.
High Low
1998
Third Quarter.............................. $0.50 $0.25
Fourth Quarter............................. $5.00 $0.19
1999
First Quarter.............................. $7.00 $4.25
Second Quarter............................. $10.00 $4.50
Third Quarter (through August 31, 1999).... $13.00 $9.33
On August 31, 1999, the last reported sale price of the Common Stock on
the OTC Bulletin Board was $11.19 per share.
Dividend Policy
The Company has not paid cash dividends on its Common Stock since its
inception. The Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to reinvest earnings,
if any, in the development and expansion of its business. The declaration of
dividends in the future will be at the election of the Board of Directors and
will depend upon the earnings, capital requirements and financial position of
the Company, general economic conditions and other relevant factors.
-40-
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On October 13, 1998, the shareholders of the Company voted to effect a
two-for-one stock split that increased the number of outstanding shares of
Common Stock from 6,000,000 to 12,000,000 and increased the number of
outstanding Common Stock purchase warrants from 1,000,000 to 2,000,000.
Accordingly, the exercise price of the Common Stock purchase warrants was
reduced to $0.25 per share. Subsequently, 1,580,000 of the Common Stock purchase
warrants were exercised at $0.25 each for cash proceeds of $395,000. The
remaining 420,000 Common Stock purchase warrants expired.
In April 1998, the Company consummated a private placement of 1,000,000
units at a price of $0.50 per unit pursuant to Rule 504 of Regulation D of the
Securities Act of 1933, as amended. Each unit consisted of two shares of Common
Stock and two Common Stock purchase warrants. Each Common Stock purchase warrant
was exercisable for one share of Common Stock at an exercise price of $0.25 per
share. The $500,000 aggregate issue price of the units was satisfied through the
receipt by the Company of cash proceeds of $260,000 and the settlement of a
non-interest bearing note of $240,000 that was due from the Company.
On January 29, 1999, the Company consummated the acquisition of VPS for
1,500,000 shares of Common Stock of the Company pursuant to an exemption under
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder.
On February 8, 1999, the Company issued options to purchase 2,250,000
shares of Common Stock at an exercise price of $1.00 per share pursuant to the
Company's 1998 Stock Option Plan.
In March 1999, the Company consummated a private placement financing
pursuant to which it issued 2,767,334 shares of Common Stock for an aggregate
offering price of $4,151,001 pursuant to Regulation S of the Securities Act of
1933, as amended.
In March 1999, the Company consummated a private placement financing
pursuant to which it issued 265,002 shares of Common Stock for an aggregate
offering price of $397,503 pursuant to Regulation D of the Securities Act of
1933, as amended.
Pursuant to an agreement dated March 22, 1999, the Company issued
60,000 shares of Common Stock to a financial investment consulting firm for
assistance in securing additional financing over the following year.
On May 13, 1999, the Company consummated the acquisition of Homebase
for 3,400,000 shares of Common Stock of the Company pursuant to an exemption
under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder.
-41-
In June 1999, the Company issued warrants to purchase 25,000 shares of
Common Stock at an exercise price of $7.00 per share to a consulting firm. The
Company may issue warrants to purchase an additional 75,000 shares of Common
Stock to such firm.
In June 1999, in return for services, the Company issued warrants to
purchase an aggregate of 200,000 shares of Common Stock at an exercise price of
$7.00 per share to four individuals.
On June 1, 1999, the Company issued options to purchase 1,180,500
shares of Common Stock to officers, employees and consultants under the 1999
Stock Option Plan and options to purchase 750,000 shares of Common Stock to an
officer and director.
On June 24, 1999, the Company consummated a private placement financing
pursuant to which it issued 420,000 shares of Common Stock and warrants to
purchase 70,000 shares of Common Stock at an exercise price of $7.00 per share
for an aggregate offering price of $2,100,000 pursuant to Regulation D of the
Securities Act of 1933, as amended.
In July and August 1999, the Company issued 1,100,000 shares of Common
Stock in a private placement financing for an aggregate offering price of
$6,050,000 pursuant to Regulation S of the Securities Act of 1933, as amended.
The Company may issue up to an additional 1,400,000 shares of Common Stock for
an aggregate offering price of $7,700,000 in such offering.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company is presently authorized to issue up to 100,000,000 shares
of Common Stock, $.001 par value per share. The following summary of certain
provisions of the Common Stock does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the Company's
Certificate of Incorporation and Bylaws that are included as exhibits to this
Registration Statement and by provisions of applicable law. As of September 1,
1999, there were 18,192,336 shares of Common Stock outstanding and options and
warrants to purchase an additional 2,075,000 shares of Common Stock at an
exercise price of $1.00 per share and 2,225,500 shares of Common Stock at an
exercise price of $7.00 per share. The holders of Common Stock are entitled to
one vote for each share held of record on each matter submitted to a vote of
stockholders. There is no cumulative voting for election of directors. Subject
to the prior rights of any series of Preferred Stock which may from time to time
be outstanding, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and, upon the liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preference on the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
-42-
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Corporate
Stock Transfer in Denver, Colorado.
-43-
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Neither the Company's Certificate of Incorporation, as amended, nor its
Amended and Restated Bylaws provide for the indemnification of its officers and
directors. Under Nevada's General Corporation Law, the Company may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the Company (such as a shareholder derivative suit), by reason of the fact
that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise. Such indemnification may extend to expenses,
including attorneys' fees, judgments, fines and amount paid in settlement
actually and reasonable incurred by such person in connection with the action,
suit or proceeding if he acted in good faith and in a manner which he reasonable
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court to be liable to
the Company or for amounts paid in settlement to the Company, unless the court
in which the action or suit was brought, or another court of competent
jurisdiction, determines that in view of all the circumstances, the person is
fairly and reasonably entitled to be indemnified for such expenses.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, and the Company is not aware of any pending or threatened
litigation that may result in claims for indemnification by any officer,
director, employee or other agent.
The Company is in the process of purchasing Directors and Officers
liability insurance to defend and indemnify directors and officers who are
subject to claims made against them for their actions and omissions as directors
and officers of the Company.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The required financial statements are included under the section
"Financial Statements" in this Registration Statement.
-44-
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Ernst & Young LLP were appointed auditors of Virtual Performance
Systems Inc. ("VPS") on December 1, 1998 and have audited the consolidated
financial statements of VPS since its inception on July 29, 1997 to March 31,
1999. Prior to January 29, 1999, Jackson & Rhodes P.C. were the auditors for
InfoCast Corporation , formerly Grant Reserve Corporation ("InfoCast" or the
"Company"). Pursuant to a share purchase agreement dated January 29, 1999, the
shareholders of VPS sold their 100% interest in VPS to InfoCast in consideration
for 1,500,000 exchangeable shares of InfoCast Canada, a wholly-owned subsidiary
of InfoCast. The InfoCast Canada shares are exchangeable into shares of Common
Stock of InfoCast for no additional consideration. In addition, the shareholders
of VPS also purchased a further 9,000,000 shares of Common Stock InfoCast from
InfoCast's former controlling shareholder, Sheridan Reserve Incorporated, in
consideration for a nominal cash amount. As a result of these two transactions,
the shareholders of VPS effectively acquired 10,500,000 shares of Common Stock
of InfoCast, which represents a controlling interest of approximately 70% (60%
excluding the exchangeable shares). This transaction was considered an
acquisition of InfoCast (the accounting subsidiary/legal parent) by VPS (the
accounting parent/legal subsidiary) and was accounted for as a purchase of the
net assets of InfoCast by VPS because InfoCast had no business operations or
operating assets at the time of acquisition. The consolidated financial
statements of the Company are issued under the name of InfoCast, but are a
continuation of the financial statements of the accounting acquirer, VPS. Ernst
& Young LLP, therefore, continue as auditors for the Company.
The Company believes, and has been advised by Jackson & Rhodes P.C.
that it concurs in such belief, that, during the year ended December 31, 1997
and subsequent thereto, InfoCast and Jackson & Rhodes P.C. did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Jackson & Rhodes P.C., would have caused it to
make reference in connection with its report on InfoCast's financial statements
to the subject matter of the disagreement.
No report of Jackson & Rhodes P.C. on InfoCast's financial statements
for either of the past two fiscal years contained an adverse opinion, a
disclaimer or opinion or a qualification or was modified as to uncertainty,
audit scope or accounting principles. During such fiscal periods, there were no
"reportable events" within the meaning of Item 304(a)(1) of Regulation S-K
promulgated under the Securities Act of 1933, as amended.
-45-
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
InfoCast Corporation Consolidated Financial Statements as of
and for the three months ended March 31, 1999, the
year ended December 31, 1998 and the period from July
29, 19997 (inception) to December 31, 1997.
InfoCast Corporation Consolidated Financial Statements as of
and for the three months ended June 30, 1999
(unaudited).
Homebase Work Solutions Ltd. Financial Statements as of and
for the three months ended March 31, 1999 and the
year ended December 31, 1998.
Applied Courseware Technology Inc. Financial Statements as of
and for the year ended August 31, 1998 and 1997.
Applied Courseware Technology Inc. Interim Financial
Statements as of and for the ten months ended June
30, 1999 (unaudited).
InfoCast Corporation Pro-Forma Consolidated Financial
Statements as of and for the three months ended June
30,1 999.
(b) Exhibits
3.1 Articles of Incorporation, as amended, of the
Company.
3.2 Amended and Restated By-laws of the Company.
4.1 Specimen Certificate of the Company's Common Stock.
4.2 Form of 1998 Stock Option Plan ("1998 Plan").
4.3 Form of Option Grant Letter under 1998 Plan.
4.4 Form of 1999 Stock Option Plan ("1999 Plan").
4.5 Form of Option Grant Letter under 1999 Plan.
4.6 Option Agreement dated June 1, 1999, by and between
the Company and James William Leech.
-46-
4.7 Warrant to Purchase 50,000 shares of Common Stock
dated June 24, 1999, issued to Thomson Kernaghan and
Co. Ltd.
4.8 Warrant to Purchase 20,000 shares of Common Stock
dated June 24, 1999, issued to Thomson Kernaghan and
Co. Ltd.
4.9 Warrant to Purchase 25,000 shares of Common Stock
dated May 31, 1999 issued to the Poretz Group.
4.10 Provisions Attaching to Common Shares of InfoCast
Canada Corporation.
4.11 Exchange Agreement dated as of May 13, 1999 by and
among the Company, InfoCast Canada Corporation,
HomeBase Work Solutions Ltd. and the Shareholders.
4.12 Support Agreement dated as of May 13, 1999 by and
among the Company, InfoCast Canada Corporation,
HomeBase Work Solutions Ltd., and the
Shareholders.
10.1 Letter Agreement dated March 17, 1999, from the
Company to Sandy Walsh.
10.2 Employment to Agreement dated August 5, 1999, by and
between the Company and James William Leech.
10.3 Consulting Agreement dated December 1, 1998, by and
between the Company and Three Hundred & Sixty
Degrees, Inc.
10.4 Consulting Agreement dated March 22, 1999, by and
between the Company and Thomson Kernaghan & Co. Ltd.
10.5 Consulting Agreement dated April 15, 1999, by and
between the Company and Michael Baybak and Company,
Inc.
10.6 Letter Agreement dated June 15, 1999, by and between
the Company and Lasso Communications Inc.
-47-
10.7 Advertising Services Agreement dated July 1, 1999, by
and between the Company and Lasso Communications Inc.
10.8 Release dated July 14, 1999, by and among the
Company, Lasso Communications Inc., James Hines and
Michael Gruber.
10.9 Memorandum of Understanding dated June 7, 1999, by
and between the Company and Willow CSN.
10.10 Summary of Terms and Conditions dated April 21, 1999,
by and between the Company and CosmoCom, Inc.
10.11 Agreement of Purchase and Sale dated as of November
17, 1998, by and between Advanced Systems Computer
Consultants, Inc. and Cheltenham Technologies
(Bermuda) Corporation.
10.12 Asset Sale Agreement dated as of November 23, 1998,
by and between Grant Reserve Corporation and Cherokee
Mining Company.
10.13 Pledge Agreement dated as of November 25, 1998, by
and between Grant Reserve Corporation and Cherokee
Mining Company.
10.14 Agreement dated as of May 18, 1999, by and between
the Company and Call Center Learning Solutions, Inc.
10.15 Distribution Agreement dated as of March 12, 1999, by
and between the Company and ITC Learning Corporation.
10.16 License Agreement dated June 29, 1999, by and between
the Company and ITC Learning Corporation.
10.17 Letter Agreement dated March 24, 1999, by and between
the Company and Applied Courseware Technology, Inc.
10.18 General Security Agreement dated March 25, 1999, by
and between InfoCast Canada Corporation and Applied
Courseware Technology, Inc.
10.19 Memorandum of Understanding dated August 28, 1998, by
and between Home Base Work Solutions Ltd. and Shaw
Fiberlink Ltd.
-48-
10.20 Licensing and Distribution Agreement dated March 7,
1999, by and between Homebase Work Solutions Ltd. and
Facet Decision Systems, Inc.
10.21 Licensing and Distribution Agreement dated March 30,
1999, by and between Homebase Work Solutions Ltd. and
Facet Petroleum Solutions, Inc.
10.22 Share Purchase Agreement dated as of May 13, 1999, by
and among the Company, InfoCast Canada Corporation,
HomeBase Work Solutions Ltd. and the Shareholders
named therein.
10.23 General Security Agreement dated March 25, 1999, by
and between InfoCast Canada Corporation and HomeBase
Work Solutions, Ltd.
10.24 Letter Agreement dated May 1999 (date unspecified),
by and among the Company and Darcy Galvon, Ken
MacLean and Sean Fleming.
10.25 Master Lease Agreement dated June 25, 1998, by and
between HomeBase Work Solutions, Ltd. and Sun
Microsystems.
10.26 Memorandum of Agreement dated July 31, 1997, by and
between Virtual Performance Systems Inc.
10.27 Letter Agreement dated November 27, 1998, by and
among Grant Reserve Corporation, Sheridan Reserve
Corporation and Virtual Performance Systems Inc.
10.28 Share Purchase Agreement dated as of January 29,
1999, by and among InfoCast Canada Limited, Virtual
Performance Systems Inc. and the Selling Shareholders
named therein.
10.29 Letter Agreement dated May 18, 1999, by and between
the Company and Satish Kumeta.
16.1 Letter from Jackson & Rhodes, P.C. relating to change
of accountants, dated September 3, 1999.
21.1 List of Subsidiaries.
23.1 Consents of Ernst & Young LLP, independent public
accountants.
23.2 Consents of Boudreau Porter Hetu, independent public
accountants
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
-49-
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
INFOCAST CORPORATION, formerly Virtual Performance Systems Inc., a development
stage company
Report of Independent Certified Public Accountants............................................................F-4
Consolidated Balance Sheets as of March 31, 1999, December 31, 1998 and 1997..................................F-5
Consolidated Statements of Operations and Comprehensive Loss for the three
months ended March 31, 1999 and 1998, the year ended December 31, 1998, the
period from July 29, 1997 (inception) to December 31, 1997 and the period
from July 29, 1997 (inception) to March 31, 1999.........................................................F-6
Consolidated Statements of Cash Flows for the three months ended March 31, 1999
and 1998, the year ended December 31, 1998, the period from July 29, 1997
(inception) to December 31, 1997 and the period from July 29, 1997
(inception)
to March 31, 1999........................................................................................F-7
Consolidated Statements of Changes in Stockholders' Equity as of December 31,
1997 and 1998 and March 31, 1999.........................................................................F-8
Notes to Consolidated Financial Statements....................................................................F-9
Consolidated Balance Sheet as of June 30, 1999 (unaudited)....................................................F-24
Consolidated Statements of Operations and Comprehensive Loss for the three
months ended June 30,1999 and 1998 and for the period from July 27, 1997
(inception) to June 30, 1999 (unaudited).................................................................F-25
Consolidated Statements of Cash Flows for the three months ended June 30, 1999
and 1998 and for the period from July 27, 1997 (inception) to June 30,
1999 (unaudited).........................................................................................F-26
Consolidated Statements of Changes in Stockholders' Equity as of March 31, 1998
and June 30, 1999 (unaudited)............................................................................F-27
Notes to Consolidated Financial Statements....................................................................F-28
F-1
HOMEBASE WORK SOLUTIONS LTD.
Report of Independent Certified Accountants....................................................................F-37
Balance Sheets as at March 31, 1999 and December 31, 1998......................................................F-38
Statements of Loss and Accumulated Development Stage Deficits for the three
months ended March 31, 1999, the 101 day period ended December 31, 1998
and the period from September 22, 1998 (inception) to March 31, 1999......................................F-39
Statements of Cash Flows for the three months ended March 31, 1999, the 101 day
period ended December 31, 1998 and the period from September 22,
1998 (inception) to March 31, 1999........................................................................F-40
Notes to Financial Statements..................................................................................F-41
APPLIED COURSEWARE TECHNOLOGY INC.
Report of Independent Certified Public Accountants.............................................................F-49
Statement of Income and Retained Earnings for the years ended August 31, 1998
and 1997.................................................................................................F-50
Balance sheet at August 31, 1998 and 1997......................................................................F-51
Statement of Changes in Financial Position for the years ended August 31, 1998
and 1997..................................................................................................F-52
Notes to the Financial Statements..............................................................................F-53
Notice to Reader...............................................................................................F-61
Interim Statement of Income and Retained Earnings for the ten months ended
June 30, 1999 and 1998 (unaudited)........................................................................F-62
Interim Balance Sheet as at June 30, 1999 and 1998 (unaudited).................................................F-63
Interim Statement of Cash Flows fro the ten months ended June 30, 1999
and 1998 (unaudited)......................................................................................F-64
Notes to the Interim Financial Statements......................................................................F-65
F-2
INFOCAST CORPORATION PRO-FORMA CONSOLIDATED FINANCIAL
STATEMENTS
Basis of Presentation..........................................................................................F-72
Pro-Forma Consolidated Balance Sheet as of June 30, 1999.......................................................F-74
Pro-Forma Consolidated Statement of Operations for the three months
ended June 30, 1999.......................................................................................F-76
Pro-Forma Adjustments..........................................................................................F-79
F-3
AUDITORS' REPORT
To the Directors of
InfoCast Corporation
We have audited the consolidated balance sheets of InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company] as of
March 31, 1999, December 31, 1998 and December 31, 1997 and the related
consolidated statements of operations and comprehensive loss, cash flows and
changes in stockholders' equity for the three month period ended March 31, 1999,
the year ended December 31, 1998, the 156 day period ended December 31, 1997 and
the period from July 29, 1997 to March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of InfoCast Corporation as of March 31, 1999, December 31,
1998 and December 31, 1997 and the consolidated results of its operations and
its cash flows for the periods then ended in conformity with accounting
principles generally accepted in the United States.
Toronto, Canada,
April 21, 1999 [except for Note 9[b] which is as of /s/ Ernst & Young LLP
May 13, 1999 and Note 9[d] which is as of Chartered Accountants
June 25, 1999].
F-4
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED BALANCE SHEETS
[U.S. dollars, U.S. GAAP]
As of As of As of
March 31, December 31, December 31,
1999 1998 1997
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 3,092,445 25,595 301
Accounts receivable 19,416 9,693 16,286
Due from InfoCast Corporation [the acquired
entity] [note 5] -- 25,020 --
Due from Applied Courseware Technology
(A.C.T.) Inc. [note 9[d]] 139,299 -- --
Due from Homebase Work Solutions Ltd.
[note 9[b]] 99,529 -- --
Prepaid expenses and refundable deposits 21,404 15,225 38
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,372,093 75,533 16,625
- ------------------------------------------------------------------------------------------------------------------------------------
Capital assets, net [note 4] 107,392 18,908 11,954
Distribution rights deposit [note 9[c]] 500,000 -- --
Intellectual property, net [note 3] 45,591 49,026 25
- ------------------------------------------------------------------------------------------------------------------------------------
4,025,076 143,467 28,604
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 354,694 117,109 13,518
Note payable to InfoCast Corporation [the acquired
entity] [note 5] -- 250,000 --
Due to directors, officers and stockholders [note 6] 177,270 273,025 109,545
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 531,964 640,134 123,063
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies [notes 9 and 11]
Stockholders' equity (deficiency)
Common stock [note 7] 16,672 -- --
Additional paid-in-capital [note 7] 16,925,017 2,443 70
Deferred compensation [note 7] (9,858,932) -- --
Accumulated other comprehensive loss 14,309 20,923 1,632
Accumulated development stage deficit (3,603,954) (520,033) (96,161)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficiency) 3,493,112 (496,667) (94,459)
- ------------------------------------------------------------------------------------------------------------------------------------
4,025,076 143,467 28,604
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-5
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
[U.S. dollars, U.S. GAAP]
Period from Cumulative
Three months Three months July 29, 1997 from
ended ended Year ended [inception] to inception to
March 31, March 31, December 31, December 31, March 31,
1999 1998 1998 1997 1999
$ $ $ $ $
[unaudited]
REVENUE
Consulting income [note 8] -- 43,446 43,446 3,508 46,954
Interest income 4,478 -- -- -- 4,478
- --------------------------------------------------------------------------------------------------------------------------------
4,478 43,446 43,446 3,508 51,432
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative and selling 635,334 42,494 375,302 47,954 1,058,590
Stock option compensation [note 7] 2,256,938 -- -- -- 2,256,938
Research and development 162,914 19,703 88,180 51,257 302,351
Interest and loan fees 23,562 -- -- -- 23,562
Amortization 4,144 -- -- -- 4,144
Depreciation 5,507 870 3,836 458 9,801
- --------------------------------------------------------------------------------------------------------------------------------
3,088,399 63,067 467,318 99,669 3,655,386
- --------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (3,083,921) (19,621) (423,872) (96,161) (3,603,954)
Translation adjustment (6,614) (1,227) 19,291 1,632 14,309
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss for the period (3,090,535) (20,848) (404,581) (94,529) (3,589,645)
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 11,583,995 41 768,301 41 2,198,607
- --------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.27) $(478.56) $(0.55) $(2,345.40) $(1.64)
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-6
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars, U.S. GAAP]
Period from
Three months Three months July 29, Cumulative
ended ended Year ended [inception] to inception to
March 31, March 31, December 31, December 31, March 31,
1999 1998 1998 1997 1999
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
[unaudited]
OPERATING ACTIVITIES
Net loss for the period (3,083,921) (19,621) (423,872) (96,161) (3,603,954)
Add items not affecting cash
Stock option compensation 2,256,938 -- -- -- 2,256,938
Common stock issued for services 10,180 -- -- -- 10,180
Amortization 4,144 -- -- -- 4,144
Depreciation 5,507 870 3,836 458 9,801
- ------------------------------------------------------------------------------------------------------------------------------------
(807,152) (18,751) (420,036) (95,703) (1,322,891)
Changes in non-cash working capital balances
Accounts receivable (9,723) (19,501) 6,593 (16,286) (19,416)
Prepaid expenses and refundable deposits (6,179) (61) (15,187) (38) (21,404)
Accounts payable and accrued liabilities 173,306 10,999 103,591 13,518 290,415
Bank overdraft -- 9,263 -- -- --
Due from InfoCast Corporation [the acquired
entity] prior to acquisition -- -- (25,020) -- (25,020)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (649,748) (18,051) (350,059) (98,509) (1,098,316)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (93,659) (325) (11,644) (12,412) (117,715)
Distribution rights deposit (500,000) -- -- -- (500,000)
Due from Homebase Work Solutions Ltd. (99,529) -- -- -- (99,529)
Due from Applied Courseware Technology (A.C.T.) Inc. (139,299) -- -- -- (139,299)
Acquisition of InfoCast Corporation 87 -- -- -- 87
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (832,400) (325) (11,644) (12,412) (856,456)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast Corporation
[the acquired entity] -- -- 250,000 -- 250,000
Increase (decrease) in due to directors, officers
and stockholders (95,755) 19,346 114,476 109,545 128,266
Receipt of short-term unsecured loan 400,000 -- 70,000 -- 470,000
Payment of short-term unsecured loan (400,000) -- (70,000) -- (470,000)
Cash advance from InfoCast Corporation
[the acquired entity] prior to acquisition 146,900 -- -- -- 146,900
Cash proceeds from issuance of share capital, net 4,505,508 -- 2,373 45 4,507,926
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 4,556,653 19,346 366,849 109,590 5,033,092
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period 3,074,505 970 5,146 (1,331) 3,078,320
Effect of foreign exchange rate changes on cash balances (7,655) (1,271) 20,148 1,632 14,125
Cash and cash equivalents, beginning of period 25,595 301 301 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 3,092,445 -- 25,595 301 3,092,445
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information
Interest and lending fees paid during the period 23,562 -- -- -- 23,562
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-7
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
[U.S. dollars, U.S. GAAP]
Accumulated
Accumulated other Additional
Common development comprehensive paid-in
shares stage deficit loss capital
# $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Deemed common shares issued for intellectual properties
[note 1[b]] 14 -- -- 25
Deemed common shares issued for cash [note 1[b]] 27 -- -- 45
Net loss for the period -- (96,161) -- --
Translation adjustment -- -- 1,632 --
- -----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of December 31, 1997 41 (96,161) 1,632 70
Deemed common shares issued for cash [note 1[b]] 1,499,959 -- -- 2,373
Net loss for the period -- (423,872) -- --
Translation adjustment -- -- 19,291 --
- -----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of December 31, 1998 1,500,000 (520,033) 20,923 2,443
Acquisition of InfoCast by VPS [note 1[b]] 13,580,000 -- -- 294,108
Common shares issued for cash 3,032,333 -- -- 4,545,468
Share issuance costs -- -- -- (42,992)
Common shares issued for consulting services 60,000 -- -- 337,740
Granting of stock options -- -- -- 11,788,250
Amortization of deferred compensation -- -- -- --
Net loss for the period -- (3,083,921) -- --
Translation adjustment -- -- (6,614) --
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 18,172,333 (3,603,954) 14,309 16,925,017
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock Total
Deferred issued and stockholders'
compensation outstanding equity
$ $ $
- ---------------------------------------------------------------------------------------------------------------------------
Deemed common shares issued for intellectual properties
[note 1[b]] -- -- 25
Deemed common shares issued for cash [note 1[b]] -- -- 45
Net loss for the period -- -- (96,161)
Translation adjustment -- -- 1,632
- ---------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of December 31, 1997 -- -- (94,459)
Deemed common shares issued for cash [note 1[b]] -- -- 2,373
Net loss for the period -- -- (423,872)
Translation adjustment -- -- 19,291
- ---------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of December 31, 1998 -- -- (496,667)
Acquisition of InfoCast by VPS [note 1[b]] -- 13,580 307,688
Common shares issued for cash -- 3,032 4,548,500
Share issuance costs -- -- (42,992)
Common shares issued for consulting services (337,800) 60 --
Granting of stock options (11,788,250) -- --
Amortization of deferred compensation 2,267,118 -- 2,267,118
Net loss for the period -- -- (3,083,921)
Translation adjustment -- -- (6,614)
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 (9,858,932) 16,672 3,493,112
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-8
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
1. BASIS OF ACCOUNTING
[a] Nature of operations and continuing entity
These consolidated financial statements are the continuing financial statements
of Virtual Performance Systems Inc. ["VPS"] [a development stage company], an
Ontario corporation which was incorporated on July 29, 1997. VPS has a 100%
interest in Cheltenham Technologies Corporation ["Cheltenham Technologies"], an
Ontario corporation, and Cheltenham Interactive Corporation ["Cheltenham
Interactive"], an Ontario corporation. Cheltenham Technologies has a 100%
interest in Cheltenham Technologies (Bermuda) Corporation ["Cheltenham
Bermuda"], a Barbados corporation. On January 29, 1999, VPS acquired the net
assets of InfoCast Corporation [formerly Grant Reserve Corporation]
["InfoCast"], 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 [note 1[b]].
InfoCast, InfoCast Canada, VPS, Cheltenham Technologies, Cheltenham Interactive
and Cheltenham Bermuda are collectively referred to as the "Company". The
Company is a development stage technology company engaged in the research and
development of information delivery technologies.
The functional currency of VPS, Cheltenham Technologies, Cheltenham Interactive,
Cheltenham Bermuda and InfoCast Canada is the Canadian dollar. However, for
reporting purposes, the Company has adopted the United States dollar as its
reporting currency. Accordingly, the Canadian dollar balance sheets of these
companies have been translated into United States dollars at the rates of
exchange at the respective period ends, while transactions during the periods
and share capital amounts have been translated at the weighted average rates of
exchange for the respective periods and the exchange rate at the date of the
transaction, respectively. Gains and losses arising from these translation
adjustments are included in comprehensive loss.
[b] Reverse acquisition of InfoCast Corporation
Pursuant to a share purchase agreement dated January 29, 1999, the shareholders
of VPS sold their 100% interest in VPS to InfoCast in consideration for
1,500,000 exchangeable shares of InfoCast Canada, a wholly-owned subsidiary of
InfoCast. The InfoCast Canada exchangeable shares are convertible into common
shares of InfoCast at no additional consideration. In addition, the shareholders
of VPS also purchased a further 9 million common shares of InfoCast from
InfoCast's former controlling shareholder, Sheridan Reserve Incorporated, in
consideration for a nominal cash amount. As a result of these two transactions,
the shareholders of VPS effectively acquired 10,500,000 common shares of
InfoCast which represents a controlling interest of approximately
F-9
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
70% [60% excluding the exchangeable shares]. This transaction is considered an
acquisition of InfoCast [the accounting subsidiary/legal parent] by VPS [the
accounting parent/legal subsidiary] and has been accounted for as a purchase of
the net assets of InfoCast by VPS in these consolidated financial statements
because InfoCast had no business operations or operating assets at the time of
the acquisition.
These consolidated financial statements are issued under the name of InfoCast,
but are a continuation of the financial statements of the accounting acquirer,
VPS. VPS's assets and liabilities are included in the consolidated financial
statements at their historical carrying amounts. Figures presented to January
29, 1999 are those of VPS. For purposes of the acquisition, the fair value of
the net assets of InfoCast of $307,688 is ascribed to the 13,580,000 previously
outstanding common shares of InfoCast deemed to be issued in the acquisition as
follows:
$
- --------------------------------------------------------------------------------
Cash 87
Note receivable from VPS 396,900
Payable to VPS (25,020)
Accounts payable (64,279)
- --------------------------------------------------------------------------------
Purchase price 307,688
- --------------------------------------------------------------------------------
Prior to the acquisition on January 29, 1999, the deemed number of outstanding
shares of InfoCast is equal to the 1,500,000 exchangeable shares of InfoCast
Canada that were issued to the shareholders of VPS in the acquisition. These
shares have been allocated to the changes in the combined issued and outstanding
and additional paid-in-capital common stock of VPS to January 29, 1999 as
follows:
Deemed
InfoCast shares VPS shares Amount
# # $
- ----------------------------------------------------------------------------------------------------------
Issued for intellectual properties [note 3] 14 35 25
Issued for cash 27 65 45
- ----------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 1997 41 100 70
Issued for cash 1,499,959 3,624,000 2,373
- ----------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 1998
and January 29, 1999 prior to acquisition 1,500,000 3,624,100 2,443
- ----------------------------------------------------------------------------------------------------------
F-10
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
The combined issued and outstanding and additional paid-in-capital common stock
of the continuing consolidated entity as of January 29, 1999 is computed as
follows:
$
- ---------------------------------------------------------------------------------------
Existing share capital of VPS as of January 29, 1999 prior to acquisition 2,443
Ascribed value of the acquired common shares of InfoCast 307,688
- ---------------------------------------------------------------------------------------
Share capital of InfoCast [formerly VPS] as of January 29, 1999 310,131
- ---------------------------------------------------------------------------------------
The number of outstanding shares of InfoCast [formerly VPS] as of January 29,
1999 is computed as follows:
Number
of shares
- --------------------------------------------------------------------------------
Deemed share capital of InfoCast [formerly VPS] as of
January 29, 1999 prior to acquisition 1,500,000
Shares of InfoCast deemed issued by VPS 13,580,000
- --------------------------------------------------------------------------------
Shares of InfoCast [formerly VPS] as of January 29, 1999 15,080,000
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarized as follows:
Principles of consolidation
These consolidated financial statements include the accounts of InfoCast and its
subsidiaries, all of which are wholly-owned. Intercompany accounts and
transactions have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents represent cash and short-term investments with a
maturity date of less than three months when acquired.
Change in year end
The Company changed its year end to March 31 from December 31.
F-11
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
Capital assets
Capital assets are recorded at cost less accumulated depreciation. If it is
determined that a capital asset is not recoverable over its estimated useful
life, the capital asset will be written down to its net recoverable value.
Maintenance and repairs are charged to expenses as incurred. Gains and losses on
the disposition of capital assets are included in income. Depreciation is
provided on a declining balance basis using the following annual rates:
Computer equipment 30%
Office equipment 20%
Leasehold improvements 20%
Intellectual property
Acquired intellectual property is recorded at cost and represents proprietary
rights to certain information delivery technologies. The capitalized costs of
the intellectual property is amortized on a straight-line basis over its
estimated useful life of 3 years. If it is determined that an investment in
intellectual property is not recoverable over its estimated useful life, the
intellectual property will be written down to its net recoverable value.
Distribution rights
Acquired distribution rights are recorded at cost and represent rights to the
distribution of certain call centre products. The capitalized costs of the
distribution rights will be amortized on a per user basis [note 9[c]]. If it is
determined that an investment in distribution rights is not recoverable from
estimated sales, the distribution rights will be written down to its net
recoverable value.
Revenue recognition
Revenue from consulting and programming services is recognized at the time such
services are rendered.
Research and development
Software development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. Research costs are expensed as incurred.
F-12
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
Foreign currency measurement
United States dollar monetary assets and liabilities of the Company's
subsidiaries utilizing the Canadian dollar as its functional currency are
remeasured into the subsidiaries' functional currency at the period end rate of
exchange. Transactions in foreign currency are remeasured at the actual rates of
exchange. Foreign currency remeasurement differences are included in general and
administrative expenses.
Stock options
As permitted by FASB Statement No. 123 ["FASB 123"], "Accounting for Stock-Based
Compensation," the Company has adopted the intrinsic value method of APB 25,
"Accounting for Stock Issued to Employees" in respect of stock options granted
to its employees and directors and FASB 123 in respect of stock options granted
to its consultants. The measurement date of options granted to consultants will
be the date the services are completed. For purposes of recognition of the cost
of the options prior to the measurement date such options are measured at their
then current fair value at each interim financial reporting date.
Income taxes
The Company follows the liability method of providing for income taxes in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
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. The weighted average number of common
shares outstanding prior to the acquisition on January 29, 1999 are based on the
number of VPS common shares outstanding during that period.
InfoCast Canada's 1,500,000 exchangeable shares outstanding are deemed to be
outstanding common shares of InfoCast for the purposes of the loss per share
calculations and share continuity disclosures because the exchangeable shares
are the economic equivalent of common shares of the Company.
F-13
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
Use of estimates
Management uses estimates and assumptions in preparing consolidated financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported amounts of
revenue and expenses. Actual results could vary from the estimates that are
used.
3. INTELLECTUAL PROPERTY
The Company executed a Memorandum of Agreement dated July 31, 1997, whereby the
Company acquired certain intellectual property owned by an officer of the
Company, in consideration for 35 VPS common shares issued at Cdn.$1 per share.
This value per share is consistent with the value ascribed to the other 65 VPS
common shares issued during 1997 for cash consideration. The intellectual
property purchased pursuant to this agreement relates to electronic information
delivery algorithms.
On November 17, 1998, the Company entered into a Purchase and Sale Agreement
with Advanced Systems Computer Consultants Inc., a company owned by the officer
of the Company noted above, pursuant to which the Company acquired certain
additional intellectual property rights related to remote banking software. The
Company purchased the intellectual property rights for consideration as follows:
[i] Cdn.$75,000 if the Company becomes a public corporation and has completed a
minimum financing of $2,000,000; and
[ii] Cdn.$325,000 if the purchased remote banking software generates revenue.
The Company has accrued the first Cdn.$75,000 [March 31, 1999 - $49,735]
installment in its accounts and has recorded amortization of $4,144 in respect
of the three-month period ended March 31, 1999 resulting in a net book value of
$45,591.
F-14
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
4. CAPITAL ASSETS
Capital assets consist of the following:
March 31, 1999 December 31, 1998
---------------------------------------- ----------------------------------------
Net Net
Accumulated book Accumulated book
Cost depreciation value Cost depreciation value
$ $ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Computer equipment 64,899 7,684 57,215 15,865 4,077 11,788
Office equipment 49,220 1,887 47,333 7,180 60 7,120
Leasehold improvements 2,979 135 2,844 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
117,098 9,706 107,392 23,045 4,137 18,908
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
---------------------------------------
Net
Accumulated book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Computer equipment 12,405 451 11,954
- ------------------------------------------------------------------------------------------------------------------------------------
12,405 451 11,954
- ------------------------------------------------------------------------------------------------------------------------------------
5. NOTE PAYABLE TO INFOCAST CORPORATION AND AMOUNT DUE FROM INFOCAST
CORPORATION
InfoCast advanced $250,000 to VPS in December 1998 in contemplation of the
acquisition [note 1[b]]. The advance was evidenced by a promissory note that is
payable on demand and bears interest at 7%. Subsequent to December 31, 1998 and
prior to the completion of the acquisition on January 29, 1999, InfoCast
advanced an additional $146,900 to VPS on the same terms.
During December 1998, VPS incurred expenses of $25,020 on behalf of InfoCast.
The amount was outstanding as of December 31, 1998, was non-interest bearing and
was payable on demand.
These amounts were eliminated upon the acquisition of InfoCast by VPS on January
29, 1999 [note 1[b]].
F-15
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
6. DUE TO DIRECTORS, OFFICERS AND STOCKHOLDERS
The amounts due to directors, officers and shareholders consist of the
following:
March 31, December 31, December 31,
1999 1998 1997
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
View Media 383 109,269 105,965
Advanced Systems Computer Consultants Inc. 65,420 64,125 3,580
Griffis International Limited 28,348 26,714 --
Past officer of the Company 44,001 43,280 --
Current officers and directors of the Company 39,118 29,637 --
- ------------------------------------------------------------------------------------------------------------------------------------
177,270 273,025 109,545
- ------------------------------------------------------------------------------------------------------------------------------------
The amounts are non-interest bearing and payable on demand. All of the amounts
due to View Media and Cdn.$25,000 of the amount due to Griffis International
Limited as of March 31, 1999 and December 31, 1998 relate to cash advances
provided to the Company, while $49,710 [Cdn.$75,000] of the amount due to
Advanced Systems Computer Consultants Inc. as of March 31, 1999 and December 31,
1998 relates to the intellectual property described in note 3. The balance
relates to expenditures incurred and services performed on behalf of the
Company.
During the three months ended March 31, 1999, the Company incurred expenses of
nil [March 31, 1998 - $16,178; December 31, 1998 - $59,319; December 31, 1997 -
$42,119] for managerial and consulting services from Advanced Systems Computer
Consultants Inc., nil [March 31, 1998 - nil; December 31, 1998 - $30,526; 1997 -
nil] for consulting services provided by View Media and $26,981 [March 31, 1998
- - nil; December 31, 1998 - $16,178; 1997 - nil] for consulting services provided
by Griffis International Limited.
View Media is a company controlled by a stockholder and former director of the
Company. Griffis International Limited is a company owned by a stockholder and
the Chairman of the Company.
7. SHARE CAPITAL
Authorized
The Company has 100,000,000 preferred shares authorized at a par value of $0.001
per share and has 100,000,000 common shares authorized at a par value of $0.001
per share.
F-16
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
Issued and outstanding common shares
The issued share capital subsequent to January 29, 1999 consists of the
following:
Common stock issued and
outstanding and
additional paid-in-capital
------------------------------------
Shares Amount
# $
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of January 29, 1999 [note 1[b]] 15,080,000 310,131
Private placement at $1.50 per share 3,032,333 4,548,500
Issuance of shares in consideration for consulting services 60,000 337,800
Share issuance costs -- (42,992)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 18,172,333 5,153,439
- ------------------------------------------------------------------------------------------------------------------------------------
Private placement
During March 1999, InfoCast completed the placement of 3,032,333 common shares
at $1.50 per share. The gross proceeds of the issue were $4,548,500.
Issuance of shares in consideration for consulting services
Pursuant to an agreement dated March 22, 1999, the Company issued 60,000 common
shares to a financial investment consulting firm in consideration for assistance
in securing additional financing over the following year. The measurement date
for these common shares will be March 22, 2000. For purposes of recognition of
the cost of the common shares prior to the measurement date such common shares
are measured at their then current fair value at each interim financial
reporting date. As of March 31, 1999, the common shares have been valued at the
$5.63 per share closing price on the agreement date of which $10,180 was charged
to general and administrative expenses during the three month period ended March
31, 1999.
Stock options
As a condition of the acquisition [note 1], InfoCast adopted the 1998 Stock
Option Plan as amended on January 29, 1999 pursuant to which 2,250,000 stock
options were set aside to be granted to various individuals involved in the
management of VPS. The options were granted on February 8, 1999, are exercisable
at a price of $1.00 per share, expire three years from the date of grant and are
subject to a vesting period of at least six months.
F-17
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
As of April 19, 1999, 175,000 of the stock options had been cancelled due to the
termination of certain individuals and the renegotiation of employment terms. Of
the 2,075,000 remaining stock options, 775,000 will vest on August 8, 1999 and
1,300,000 will vest on February 8, 2000. These outstanding stock options have
been valued at $11,788,250 of which $2,256,938 has been recognized as a stock
option compensation expense, and of which the balance of $9,531,312 has been
recorded as deferred compensation in stockholders' equity. The deferred
compensation will be adjusted for the then current fair market value at each
interim financial reporting date for the 375,000 stock options granted to
consultants and will be amortized to income over the vesting periods of the
stock options.
If the Company had been following 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 the three month period ended March 31, 1999 of
$69,556 and a higher deferred compensation as of March 31, 1999 of $322,434.
This higher stock option compensation expense would result in a pro-forma net
loss of $3,153,487 and a pro-forma basic and diluted loss per share of $0.27 in
respect of the three month period ended March 31, 1999. The Company assumed an
expected dividend rate of 0%, a risk free interest rate of 5.08% and an expected
volatility factor of 0.838 in respect of the valuation of the stock options in
accordance with FASB 123.
The directors of the Company have approved a 1999 stock option plan under which
an additional 2,000,000 stock options will be eligible for grant. The 1999 stock
option plan is subject to stockholder approval.
8. DISCONTINUED REVENUE SOURCES
The Company recorded revenue of $43,446 during the year ended December 31, 1998
[March 31, 1998 - $43,446; December 31, 1997 - $3,508] mainly resulting from the
provision of computer programming services to one customer. These services are
no longer being provided by the Company to this customer.
As of March 31, 1999, nil [March 31, 1998 - nil; December 31, 1997 - $3,448] was
recorded as accounts receivable from this customer.
F-18
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
9. COMMITMENTS
[a] Lease commitments
The Company leased premises under non-cancellable operating leases which require
future annual minimum lease payments as follows:
$
- -------------------------------------------------------------------
1999 60,428
2000 52,238
2001 35,072
2002 5,874
2003 --
- -------------------------------------------------------------------
153,612
- -------------------------------------------------------------------
The rental payments for the premises are exclusive of taxes and operating costs.
During the three month period ended March 31, 1999, the Company incurred rent
expense of $38,682 [March 31, 1998 - $4,044; December 31, 1998 - $16,701;
December 31, 1997 - $5,711].
[b] Acquisition of Homebase Work Solutions Ltd.
Pursuant to a Letter of Intent dated December 14, 1998, between the Company and
Homebase Work Solutions Ltd. ["Homebase"], the Company intended to purchase a
100% interest in Homebase in consideration for 2,100,000 common shares of the
Company. The agreement was conditional upon regulatory approval and satisfactory
due diligence. Homebase is a telework solution provider headquartered in
Calgary, Alberta.
Pursuant to a share purchase agreement dated May 13, 1999, all of Homebase's
outstanding common shares, first preferred series A shares, common share
purchase warrants and penalty common share purchase warrants were acquired by
the Company in consideration for 3,400,000 exchangeable shares of InfoCast
Canada. The InfoCast Canada exchangeable shares are convertible into InfoCast
common shares on a one-for-one basis at no additional consideration. The
acquisition will be accounted for by the purchase method. The allocation of the
purchase price has not yet been finalized.
As a condition of the closing of the share purchase agreement, the Company will
pay Cdn. $210,000 to officers of Homebase and must pay an additional Cdn.
$210,000 to the officers of Homebase if the Company completes a private
placement financing for gross proceeds of at least
F-19
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
$1,000,000 or completes a letter of credit financing of at least $500,000. These
amounts will be expensed after the closing.
On March 25, 1999, the Company advanced Cdn. $150,000 to Homebase in
consideration for a promissory note bearing interest at prime plus 1%. The
promissory note is payable on demand and is collateralized by a general security
agreement. As of March 31, 1999, $99,529 has been recorded as an amount due from
Homebase, including interest receivable of $105.
[c] Purchase of call centre distribution rights
Pursuant to an agreement dated December 15, 1998, as amended by a letter
agreement dated February 16, 1999, and an agreement dated March 12, 1999,
between the Company and ITC Learning Corporation ["ITC"], the Company will
purchase from ITC the distribution rights for certain call centre products in
consideration for $1,000,000 in respect of the first 150,000 user licenses and
based on a shared revenue formula for user licenses in excess of 150,000. The
first $500,000 of the initial $1,000,000 purchase price was paid during March
1999 and has been recorded as distribution rights deposit in the accounts of the
Company, while the final $500,000 of the initial $1,000,000 purchase price is
payable on May 31, 1999.
[d] Purchase of Applied Courseware Technology (A.C.T.) Inc.
Pursuant to a Letter of Intent dated February 10, 1999 between the Company and
Applied Courseware Technology (A.C.T.) Inc. ["ACT"], the Company intends to
purchase a 100% interest in ACT in consideration for [i] Cdn. $280,000 cash,
[ii] 750,000 common shares of the Company, [iii] the assumption of long-term
debt of ACT of approximately Cdn. $700,000 which the Company intends to
renegotiate and [iv] the settlement by the Company of approximately Cdn.
$350,000 of additional ACT debt. The transaction is subject to satisfactory due
diligence. During February and March 1999, the Company paid Cdn. $140,000 of the
ACT debt in consideration for a note secured by a general security agreement
subject to prior charges and made cash advances to ACT totalling Cdn. $70,000 to
fund certain development expenditures incurred on behalf of the Company. As of
March 31, 1999, $139,299 has been recorded as an amount due from ACT, including
interest receivable of $107. The realization of these loans are dependent on the
successful acquisition of ACT.
Pursuant to subsequent negotiations, the Cdn. $280,000 cash component of the
purchase price was revised to nil. The amount and terms of ACT's debt that will
be assumed by the Company upon its acquisition has not yet been determined.
F-20
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
[e] Marketing agreement
Pursuant to a consulting agreement and a news letter publicity agreement dated
April 15, 1999, the Company will pay $6,000 per month plus expenses to a
marketing consultant in consideration for national media consulting services
over the one year term of the agreement and will pay $250,000 for the costs of
the production and distribution of an investor newsletter featuring the Company.
10. INCOME TAXES
As of March 31, 1999, the Company has accumulated non-capital losses of
approximately Cdn.$1,000,000 for Canadian income tax purposes which are
available to reduce future years' taxable income. The future income tax benefits
associated with these non-capital losses have not yet been recognized in the
accounts.
These non-capital losses will expire as follows:
Cdn. $
- --------------------------------------------------------------------------
2003 125,000
2004 625,000
2005 250,000
- --------------------------------------------------------------------------
1,000,000
- --------------------------------------------------------------------------
The Company has recorded no United States current federal income tax expense or
benefit. As of March 31, 1999, the Company has accumulated non-capital losses of
approximately $600,000 for United States income tax purposes which are available
to reduce future years' taxable income. The future income tax benefits
associated with these non-capital losses have not yet been recognized in the
accounts. These non-capital losses will expire as follows:
$
- ------------------------------------------------------------------------
2018 200,000
2019 400,000
- ------------------------------------------------------------------------
600,000
- ------------------------------------------------------------------------
The Company has a United States capital loss carryforward of approximately
$65,000. This capital loss carryforward will expire, if not utilized, in 2003. A
capital loss carryforward may only be used to reduce capital gains and cannot be
applied against taxable ordinary income that might be earned by the Company.
A deferred tax asset has been established relating to the operating and capital
loss carryforwards and the timing differences between the Company's tax and
financial reporting basis. A valuation
F-21
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
allowance equal to the entire amount of the deferred tax asset has been
established due to the uncertainty of the future utilization of the operating
and capital loss carryforwards. Following are the components of the Company's
deferred tax asset balances:
March 31, December 31, December 31,
1999 1998 1997
$ $ $
- ----------------------------------------------------------------------------
Deferred tax asset 559,887 231,189 40,517
Valuation allowance (559,887) (231,189) (40,517)
- ----------------------------------------------------------------------------
-- -- --
- ----------------------------------------------------------------------------
11. CONTINGENCIES
Fair value of financial instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
The fair values of financial instruments classified as current assets or
liabilities including cash and cash equivalents, accounts receivable, due from
InfoCast [the acquired entity], due from ACT, due from Homebase, accounts
payable and accrued liabilities, notes payable and due to directors, officers
and stockholders as of March 31, 1999, March 31, 1998, December 31, 1998 and
December 31, 1997 approximate the carrying values due to the short-term maturity
of the instruments.
Concentration of credit risk
The Company invests its cash and cash equivalents primarily with a major
Canadian chartered bank. Certain deposits, at times, are in excess of limits
insured by the Canadian government.
F-22
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS [Information for
the three month period ended March 31,
1998 is unaudited]
[U.S. dollars except where otherwise noted, U.S. GAAP]
March 31, 1999
Note receivable from Cherokee Mining Company Inc.
Pursuant to an agreement dated November 23, 1998 as amended April 20, 1999, and
effective December 18, 1998, InfoCast [the acquired entity] sold its equity
interest in its two subsidiaries, Gold King Mines Corporation ["Gold King"] and
Madison Mining Corporation ["Madison Mining"] to Cherokee Mining Company Inc.
["Cherokee"], a company controlled by a former director of InfoCast, for [i] a
non-interest bearing note of $600,000 due November 25, 1999 and [ii] the
entitlement to 80% of the net proceeds received by Madison Mining and Gold King
in excess of $681,175 from the sale of their mining properties and assets.
InfoCast did not record a value on the $600,000 note receivable because of the
uncertainty of whether the management of Cherokee, Gold King and Madison Mining
will be able to sell the capital assets of Gold King and Madison Mining for
sufficient proceeds to enable the note to be repaid to InfoCast. As a result,
VPS did not reflect the note in the purchase equation upon the acquisition of
InfoCast [note 1[b]]. In the event that the note is repaid, the amount received
will be credited to stockholders' equity.
F-23
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED BALANCE SHEET
[U.S. dollars, U.S. GAAP]
Unaudited
As of
June 30,
1999
$
- ---------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 1,493,205
Accounts receivable 114,253
Due from Applied Courseware Technology (A.C.T.) Inc. [note 3[a]] 97,120
Prepaid expenses and refundable deposits 586,968
- ---------------------------------------------------------------------------------
Total current assets 2,291,546
- ---------------------------------------------------------------------------------
Capital assets, net 239,197
Goodwill, net 5,695,731
Distribution rights, net 2,975,000
Intellectual property, net 17,672,518
Software license 62,825
- ---------------------------------------------------------------------------------
28,936,817
- ---------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 2,375,898
- ---------------------------------------------------------------------------------
Total current liabilities 2,375,898
- ---------------------------------------------------------------------------------
Deferred income taxes 6,699,395
- ---------------------------------------------------------------------------------
Total liabilities 9,075,293
- ---------------------------------------------------------------------------------
Commitments and contingencies [notes 3 and 4]
Stockholders' equity
Common stock 20,492
Additional paid-in-capital 38,125,727
Deferred compensation (6,448,694)
Warrants 712,800
Accumulated other comprehensive loss (14,655)
Accumulated development stage deficit (12,534,146)
- ---------------------------------------------------------------------------------
Total stockholders' equity 19,861,524
- ---------------------------------------------------------------------------------
28,936,817
- ---------------------------------------------------------------------------------
See accompanying notes
On behalf of the Board:
Director Director
F-24
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,
1999 1998 1999
$ $ $
REVENUE
Consulting income -- 102 46,954
Interest income 23,157 -- 27,635
- ----------------------------------------------------------------------------------------------------
23,157 102 74,589
- ----------------------------------------------------------------------------------------------------
EXPENSES
General, administrative and selling 1,936,815 17,767 2,995,405
Stock option compensation 5,829,647 -- 8,086,585
Research and development 730,657 28,964 1,033,008
Interest and loan fees -- -- 23,562
Amortization 645,873 -- 650,017
Depreciation 8,962 941 18,763
- ----------------------------------------------------------------------------------------------------
9,151,954 47,672 12,807,340
- ----------------------------------------------------------------------------------------------------
Loss before income taxes (9,128,797) (47,570) (12,732,751)
Deferred income taxes (198,605) -- (198,605)
- ----------------------------------------------------------------------------------------------------
Net loss for the period (8,930,192) (47,570) (12,534,146)
Translation adjustment (28,964) 4,344 (14,655)
- ----------------------------------------------------------------------------------------------------
Comprehensive loss for the period (8,959,156) (43,226) (12,548,801)
- ----------------------------------------------------------------------------------------------------
Weighted average number of
shares outstanding 20,035,410 298,324 4,596,050
- ----------------------------------------------------------------------------------------------------
Basic and diluted loss per share $(0.45) $(0.16) $(2.73)
- ----------------------------------------------------------------------------------------------------
See accompanying notes
F-25
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars, U.S. GAAP]
Unaudited
Cumulative
Three months Three months from
ended ended inception to
June 30, June 30, June 30,
1999 1998 1999
$ $ $
OPERATING ACTIVITIES
Net loss for the period (8,930,192) (47,570) (12,534,146)
Add (deduct) items not affecting cash
Stock option compensation 5,829,647 -- 8,086,585
Common stock issued for services 157,923 -- 168,103
Warrants issued for services 449,998 -- 449,998
Write-off of in-process research and development 31,000 -- 31,000
Deferred income taxes (198,605) -- (198,605)
Amortization 645,873 -- 650,017
Depreciation 8,962 941 18,763
- ------------------------------------------------------------------------------------------------------------------------------------
(2,005,394) (46,629) (3,328,285)
Changes in non-cash working capital balances
Accounts receivable (36,340) 35,467 (102,154)
Prepaid expenses and refundable deposits (564,096) 62 (585,500)
Accounts payable and accrued liabilities (60,982) (7,225) 229,433
Bank overdraft -- (7,662) --
Due from InfoCast [the acquired entity] prior to acquisition -- -- (25,020)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (2,666,812) (25,987) (3,811,526)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (117,151) (1,828) (234,866)
Purchase of intellectual property (49,004) -- (49,004)
Distribution rights (475,000) -- (975,000)
Purchase of software license (62,825) -- (62,825)
Due from Homebase Work Solutions Ltd. -- -- (99,529)
Acquisition of Homebase Work Solutions Ltd. 50,667 -- 50,667
Due from Applied Courseware Technology (A.C.T.) Inc. -- -- (92,901)
Acquisition of InfoCast Corporation -- -- 87
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (653,313) (1,828) (1,463,371)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entity] -- -- 250,000
Increase (decrease) in due to directors, officers and stockholders (128,266) 23,037 --
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 issuance of share capital, net 1,890,000 -- 6,397,926
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,761,734 23,037 6,794,826
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period (1,558,391) (4,778) 1,519,929
Effect of foreign exchange rate changes on cash balances (40,849) 4,778 (26,724)
Cash and cash equivalents, beginning of period 3,092,445 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,493,205 -- 1,493,205
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information
Interest and lending fees paid during the period -- -- 23,562
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-26
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
[U.S. dollars, U.S. GAAP]
Unaudited
Common stock Additional
Common issued and paid-in Deferred
shares outstanding capital compensation
# $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 18,172,333 16,672 16,925,017 (9,858,932)
Deemed common shares issued for the acquisition
of Homebase Work Solutions Ltd. 3,400,000 3,400 16,996,600 --
Common shares issued for cash 420,000 420 2,099,580 --
Share issuance costs - cash -- -- (210,000) --
Share issuance costs - warrants -- -- (226,800) --
Warrants issued for consulting services -- -- -- (36,002)
Adjustments resulting from revaluation of stock options
granted to consultants in previous period -- -- 1,233,750 830,579
Adjustments resulting from revaluation of common shares
granted to consultants in previous period -- -- 269,700 (111,777)
Granting of stock options -- -- 1,037,880 (1,037,880)
Amortization of deferred compensation -- -- -- 3,765,318
Net loss for the period -- -- -- --
Translation adjustment -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 1999 21,992,333 20,492 38,125,727 (6,448,694)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
other Accumulated Total
comprehensive development stockholders'
Warrants income (loss) stage deficit equity
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 -- 14,309 (3,603,954) 3,493,112
Deemed common shares issued for the acquisition
of Homebase Work Solutions Ltd. -- -- -- 17,000,000
Common shares issued for cash -- -- -- 2,100,000
Share issuance costs - cash -- -- -- (210,000)
Share issuance costs - warrants 226,800 -- -- --
Warrants issued for consulting services 486,000 -- -- 449,998
Adjustments resulting from revaluation of stock options
granted to consultants in previous period -- -- -- 2,064,329
Adjustments resulting from revaluation of common shares
granted to consultants in previous period -- -- -- 157,923
Granting of stock options -- -- -- --
Amortization of deferred compensation -- -- -- 3,765,318
Net loss for the period -- -- (8,930,192) (8,930,192)
Translation adjustment -- (28,964) -- (28,964)
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 1999 712,800 (14,655) (12,534,146) 19,861,524
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-27
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
1. BASIS OF ACCOUNTING
Nature of operations and continuing entity
These consolidated financial statements are the continuing financial statements
of Virtual Performance Systems Inc. ["VPS"] [a development stage company], an
Ontario corporation which was incorporated on July 29, 1997. VPS had a 100%
interest in, and subsequently amalgamated with, Cheltenham Technologies
Corporation, an Ontario corporation. VPS has a 100% interest in Cheltenham
Interactive Corporation ["Cheltenham Interactive"], an Ontario corporation, and
Cheltenham Technologies (Bermuda) Corporation ["Cheltenham Bermuda"], a Barbados
corporation. On January 29, 1999, VPS acquired the net assets of InfoCast
Corporation [formerly Grant Reserve Corporation] ["InfoCast"], 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.
InfoCast, InfoCast Canada, VPS, Cheltenham Interactive and Cheltenham Bermuda
are collectively referred to as the "Company". The Company is a development
stage technology company engaged in the research and development of information
delivery technologies.
The functional currency of VPS, Cheltenham Interactive, Cheltenham Bermuda and
InfoCast Canada is the Canadian dollar. However, for reporting purposes, the
Company has adopted the United States dollar as its reporting currency.
Accordingly, the Canadian dollar balance sheets of these companies have been
translated into United States dollars at the rates of exchange at the respective
period ends, while transactions during the periods and share capital amounts
have been translated at the weighted average rates of exchange for the
respective periods and the exchange rate at the date of the transaction,
respectively. Gains and losses arising from these translation adjustments are
included in comprehensive loss.
Acquisition of Homebase Work Solutions Ltd.
Pursuant to a share purchase agreement dated May 13, 1999, Homebase Work
Solutions Ltd. ["Homebase"] was acquired by the Company in consideration for
3,400,000 exchangeable shares of InfoCast Canada. The InfoCast Canada
exchangeable shares are convertible into InfoCast common shares on a one-for-one
basis at no additional consideration.
As a condition of the closing of the share purchase agreement, the Company paid
Cdn.$210,000 [$141,561] to officers of Homebase in May 1999 and must pay an
additional Cdn.$210,000 [$141,561] to the officers of Homebase if the Company
completes a private placement financing for gross proceeds of at least
$1,000,000 or completes a letter of credit financing of at least $500,000. A
private placement of 420,000 common shares was completed in June 1999 at $5.00
F-28
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
per share for gross proceeds of $2,100,000 and, as a result, the remaining
Cdn.$210,000 [$141,561] is included as an accrued liability at June 30, 1999.
The acquisition has been accounted for using the purchase method. The value of
the acquisition was $17,077,000, which included $77,000 of expenses directly
attributable to the acquisition. For accounting purposes the exchangeable shares
of InfoCast Canada have been valued at $5.00 which is equal to the price per
share received from the June 1999 private placement of the Company's common
shares. The total purchase price of $17,077,000 has been allocated as follows:
$
- --------------------------------------------------------------------------------
Cash 127,667
Other current assets 13,565
Capital assets 20,465
Completed technology 17,015,000
In-process research and development 31,000
Trademarks 853,000
Workforce-in-place 253,000
Goodwill 5,846,293
Deferred income taxes (6,898,000)
Accounts payable and accrued liabilities (82,145)
Due to the Company (102,845)
- --------------------------------------------------------------------------------
Purchase price 17,077,000
- --------------------------------------------------------------------------------
The completed technology, trademarks, workforce in-place and goodwill will be
amortized over their respective useful lives of 5 years, 5 years, 3 years and 5
years. The in-process research and development was charged to income immediately
subsequent to the acquisition. The completed technology, trademarks and
workforce-in-place have been classified as intellectual property on the
consolidated balance sheet. The deferred income tax liability was created in
respect of the difference between the accounting and tax basis of the completed
technology, trademarks and workforce-in-place.
The results of operations of Homebase during the post-acquisition 49-day period
ended June 30, 1999 have been consolidated with those of the Company.
Change in year end
The Company changed its year end from December 31 to March 31.
F-29
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
Basis of presentation
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] considered necessary for fair
presentation have been included. The operating results for the three-month
period ended June 30, 1999 may not be indicative of the operating results that
will occur for the year ended March 31, 2000.
For further information, please refer to the consolidated financial statements
and footnotes thereto of the Company as of and for the three-month period ended
March 31, 1999, as of and for the year ended December 31, 1998 and as of and for
the 156-day period ended December 31, 1997, included elsewhere in this document.
2. SHARE CAPITAL
Authorized
The Company has 100,000,000 preferred shares authorized at a par value of $0.001
per share and has 100,000,000 common shares authorized at a par value of $0.001
per share.
Issued and outstanding common shares
Common stock issued and
outstanding and
additional paid-in-capital
Shares Amount
# $
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 18,172,333 5,153,739
Acquisition of Homebase Work Solutions Ltd. 3,400,000 17,000,000
Private placement at $5.00 per share 420,000 2,100,000
Share issuance costs -- (436,800)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of June 30, 1999 21,992,333 23,816,939
- ------------------------------------------------------------------------------------------------------------------------------------
F-30
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
Exchangeable shares
The number of common shares outstanding as of June 30, 1999 includes 4,900,000
exchangeable shares of InfoCast Canada which have been deemed as common shares
of the Company for accounting purposes because the exchangeable shares are the
economic equivalent of common shares of the Company.
Securities Purchase Agreement
Pursuant to a Securities Purchase Agreement dated June 24, 1999, the Company
issued, by way of a private placement, 420,000 common shares to the agent at
$5.00 per share for gross proceeds of $2,100,000, net of commissions of
$210,000.
Also pursuant to the Securities Purchase Agreement, the Company issued 70,000
warrants on June 24, 1999 to the agent. Each warrant has an exercise price of
$7.00, expires June 23, 2001 and has been valued at $3.24 in the accounts based
on an expected volatility factor of 0.715 and a risk free interest rate of 5.1%.
As a result, $226,800 was charged to share issuance costs during the three-month
period ended June 30, 1999.
Stock options
As of June 30, 1999, 2,075,000 common shares were reserved for the exercise of
stock options granted to various individuals involved in the management of VPS
pursuant to the Company's 1998 Stock Option Plan as amended on January 29, 1999.
The options were granted on February 8, 1999, are exercisable at a price of
$1.00 per share, expire three years from the date of grant and are subject to a
vesting period of at least six months. Of the 2,075,000 stock options that were
originally valued at $11,788,250, the 375,000 that were granted to consultants
were revalued as of June 30, 1999 to $9.16 each based on a revised volatility
factor of 0.718 and the June 30, 1999 common share closing market price of
$10.25, which resulted in a charge to stock option compensation expense of
$2,064,329 and an increase in deferred compensation of $830,579 during the
three-month period ended June 30, 1999. Stock option compensation expense of
$2,998,178 was charged to income in respect of the remaining 1,700,000 stock
options during the three-month period ended June 30, 1999.
The directors and stockholders of the Company approved the 1999 Stock Option
Plan under which an additional 2,000,000 stock options are eligible for grant.
As of June 30, 1999, 1,180,500 stock options were granted to various employees,
officers, directors, consultants and advisors pursuant to the 1999 Stock Option
Plan. The options were granted on June 1, 1999, are exercisable at a price of
$7.00 per share, expire five years from the date of grant and are subject to a
vesting period ranging from immediate vesting to six months. Of the 1,180,500
stock options, 905,500 vest immediately and 275,000 will vest on June 1, 2000.
These outstanding stock options
F-31
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
have been valued at $1,037,880 of which $767,140 has been recognized as a stock
option compensation expense during the three-month period ended June 30, 1999,
and of which the balance of $270,740 has been recorded as deferred compensation
in stockholders' equity. The deferred compensation will be adjusted for the then
current fair market value at each interim financial reporting date for the
480,500 stock options granted to consultants and advisors, and will be amortized
to income over the vesting periods of the 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. The stock options are exercisable at a price of $7.00
per share, expire 5 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.
The measurement date in respect of these stock options will be September 4,
1999.
If the Company had been following 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 the three-month period
ended June 30, 1999 of $1,414,656 which results in a pro-forma net loss of
$10,323,880 and a pro-forma basic and diluted loss per share of $0.52 in respect
of the three-month period ended June 30, 1999. The Company assumed an expected
dividend rate of 0%, a risk-free interest rate of 5.08% and an expected
volatility factor of 0.838 in respect of the valuation of the stock options
granted under the 1998 Stock Option Plan in accordance with FASB 123. The
Company assumed an expected dividend rate of 0%, a risk-free interest rate of
5.1% and an expected volatility factor of 0.744 in respect of the valuation of
the stock options granted under the 1999 Stock Option Plan in accordance with
FASB 123.
Issuance of shares in consideration for consulting services
Pursuant to an agreement dated March 22, 1999, the Company issued 60,000 common
shares to a financial investment consulting firm on March 22, 1999 in
consideration for assistance in securing additional financing over the following
year. The measurement date for these common shares will be March 22, 2000. For
purposes of recognition of the cost of the common shares prior to the
measurement date such common shares are measured at their then current fair
value at each interim financial reporting date. These common shares were
revalued as of June 30, 1999 to $10.13 each which resulted in a charge to
general and administrative expenses of $157,923 and a charge to deferred
compensation of $111,777 during the three-month period ended June 30, 1999.
F-32
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
Other warrants
Pursuant to a letter agreement dated May 20, 1999 with an investor relations
company, the Company will pay $25,000 and issue 25,000 warrants each quarter in
advance commencing June 1, 1999 in consideration for consulting services over
the period from June 1, 1999 to May 31, 2000. Based on a volatility factor of
0.744 and a risk-free interest rate of 5.10%, the Company valued the 25,000
warrants issued on June 1, 1999 at $54,000, which will be adjusted on the August
31, 1999 measurement date to their then fair market value. Each of the existing
and future warrants issued under this letter agreement has an exercise price of
$7.00, is exercisable on or after June 1, 2000 and expires May 31, 2001. The
Company charged $17,998 to general and administrative expenses in respect of
these warrants during the three-month period ended June 30, 1999.
On June 1, 1999, the Company issued 200,000 warrants to parties in consideration
for past consulting services to the Company. These warrants have a purchase
price of $7.00, are exercisable on or after June 1, 2000 and expire May 31,
2001. These warrants have been valued at $432,000 in the accounts based on a
volatility factor of 0.744 and a risk-free interest rate of 5.10% and have been
charged to general and administrative expenses.
3. COMMITMENTS
[a] Purchase of Applied Courseware Technology (A.C.T.) Inc.
Pursuant to a Letter of Intent dated February 10, 1999 between the Company
and Applied Courseware Technology (A.C.T.) Inc. ["ACT"], the Company
intended to purchase a 100% interest in ACT in consideration for [i]
Cdn.$280,000 cash, [ii] 750,000 common shares of the Company and [iii] the
assumption of ACT's liabilities. Pursuant to subsequent negotiations, the
Cdn.$280,000 cash component of the purchase price was revised to nil. The
transaction is subject to satisfactory due diligence. The amount and terms
of ACT's debt that will be assumed by the Company upon its acquisition has
not yet been determined.
During the three-month period ended June 30, 1999, the Company made cash
advances to ACT totalling Cdn.$428,000 to fund certain development
expenditures incurred on behalf of the Company. These advances in addition
to Cdn.$70,000 that was outstanding as of March 31, 1999 have been charged
to research and development during the three-month period ended June 30,
1999. As of June 30, 1999, $97,120 [1998 - nil], including interest
receivable of $2,611, has been recorded as an amount due from ACT in
respect of Cdn.$140,000 of ACT's debt that the Company paid in March 1999
in consideration for a note secured by a general security agreement
subject to prior charges. The realization of this loan is dependent on the
successful acquisition of ACT.
[b] Marketing agreement
F-33
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
Pursuant to an advertising services agreement dated July 14, 1999, the
Company will pay Cdn.$20,833 per month to an advertising agency in
consideration for the creation, production and placement of various
marketing and advertising initiatives. This agreement commences July 1,
1999 and continues for a fixed term until May 1, 2000.
[c] License agreement
Pursuant to a license agreement dated June 29, 1999, between the Company
and ITC Learning Corporation ["ITC"], and for total consideration of
$2,000,000 payable in three installments, the Company will become ITC's
exclusive distance learning technology partner for the delivery of
educational material for the State of California. This amount has been
provided for in the accounts.
[d] Call Center Learning Solutions On-Line Inc. joint venture
Pursuant to an agreement dated May 18, 1999, between the Company and Call
Center Learning Solutions Inc. ["CCLS"], the two parties have agreed to
form a new corporation, Call Center Learning Solutions On-Line Inc. ["CCLS
On-Line"] to be owned equally by the Company and CCLS. The new corporation
will develop, own and exploit courseware in an electronic format capable
of electronic distribution. The Company will contribute the resources
necessary to convert the first five courses into the electronic format,
will fund the incorporation and organization of the new corporation and
will fund all marketing and technical support efforts of the new
corporation for the initial six-month period. At the end of the initial
six-month period, the two parties will share all revenues and bear all
costs on a 50/50 basis.
[e] Lease agreement
Homebase entered into a lease agreement with Sun Microsystems on June 25,
1999 for the lease of a Sun Microsystems Enterprise 10000 computer. The
Company paid a deposit of Cdn.$700,000 at the time of signing. The
commencement date of the lease is the 16th day following delivery of the
equipment. The equipment had not been delivered as of June 30, 1999. After
delivery of the equipment, the lease requires monthly payments of
Cdn.$59,197 over a term of 36 months.
F-34
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
4. CONTINGENCIES
Fair value of financial instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
The fair values of financial instruments classified as current assets or
liabilities including cash and cash equivalents, accounts receivable, due from
ACT and accounts payable and accrued liabilities as of June 30, 1999 approximate
the carrying values due to the short-term maturity of the instruments.
Concentration of credit risk
The Company invests its cash and cash equivalents primarily with a major
Canadian chartered bank. Certain deposits, at times, are in excess of limits
insured by the Canadian government.
Note receivable from Cherokee Mining Company Inc.
Pursuant to an agreement dated November 23, 1998, as amended April 20, 1999, and
effective December 18, 1998, InfoCast [the acquired entity] sold its equity
interest in its two subsidiaries, Gold King Mines Corporation ["Gold King"] and
Madison Mining Corporation ["Madison Mining"] to Cherokee Mining Company Inc.
["Cherokee"], a company controlled by a former director of InfoCast, for [i] a
non-interest bearing note of $600,000 due November 25, 1999 and [ii] the
entitlement to 80% of the net proceeds received by Madison Mining and Gold King
in excess of $681,175 from the sale of their mining properties and assets.
InfoCast did not record a value on the $600,000 note receivable because of the
uncertainty of whether the management of Cherokee, Gold King and Madison Mining
will be able to sell the capital assets of Gold King and Madison Mining for
sufficient proceeds to enable the note to be repaid to InfoCast. As a result,
VPS did not reflect the note in the purchase equation upon the acquisition of
InfoCast in January 1999. In the event that the note is repaid, the amount
received will be credited to stockholders' equity.
F-35
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted, U.S. GAAP]
June 30, 1999 Unaudited
5. SUBSEQUENT EVENT
Private placement
During July and August 1999, the Company completed the placement of 1,100,000
common shares at $5.50 per share for gross proceeds of $6,050,000, less an
agent's fee of $605,041.
F-36
AUDITORS' REPORT
To the Directors of
Homebase Work Solutions Ltd.
We have audited the balance sheets of Homebase Work Solutions Ltd. [a
development stage company] as at March 31, 1999 and December 31, 1998 and the
statements of loss and accumulated development stage deficit and cash flows for
the three-month period ended March 31, 1999, the 101-day period ended December
31, 1998 and the cumulative period from inception, September 22, 1998, to March
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at March 31, 1999 and
December 31, 1998 and the results of its operations and its cash flows for the
three-month period ended March 31, 1999, the 101-day period ended December 31,
1998 and the cumulative period from inception, September 22, 1998, to March 31,
1999 in accordance with accounting principles generally accepted in Canada.
Toronto, Canada, /s/ Ernst & Young LLP
June 11, 1999. Chartered Accountants
F-37
Homebase Work Solutions Ltd.
[a development stage company]
BALANCE SHEETS
[expressed in Canadian dollars]
As at As at
March 31, December 31,
1999 1998
$ $
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash 332,198 66,716
Prepaid expenses 2,140 2,140
Accounts receivable 9,719 41,455
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 344,057 110,311
- --------------------------------------------------------------------------------------------------------------------------
Fixed assets, net [note 3] 9,643 1,900
Software distribution rights, net [note 4] 389,244 --
- --------------------------------------------------------------------------------------------------------------------------
742,944 112,211
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 134,378 6,920
Promissory note payable to InfoCast Corporation [note 6] 150,000 --
Due to shareholders [note 7] 283 1,117
First preferred series A shares [note 5] 258,639 236,683
Dividends payable on first preferred series A shares [note 5] 28,125 --
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 571,425 244,720
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Common shares [note 5] 727,275 8,212
Accumulated development stage deficit (555,756) (140,721)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficiency) 171,519 (132,509)
- --------------------------------------------------------------------------------------------------------------------------
742,944 112,211
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-38
Homebase Work Solutions Ltd.
[a development stage company]
STATEMENTS OF LOSS AND ACCUMULATED
DEVELOPMENT STAGE DEFICIT
[expressed in Canadian dollars]
Cumulative period
from inception,
Three-month 101-day period September 22,
period ended ended 1998,
March 31, December 31, to March 31,
1999 1998 1999
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Interest 288 719 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Professional fees 46,460 78,545 125,005
Wages and benefits 81,733 29,511 111,244
National Environmental Policy
Institute funding [note 9] 143,884 -- 143,884
Bank charges and interest 234 193 427
First preferred series A share interest
accretion [note 5] 21,956 11,683 33,639
First preferred series A share dividend
expense [note 5] 28,125 -- 28,125
Other 62,605 21,508 84,113
Depreciation and amortization 30,326 -- 30,326
- ------------------------------------------------------------------------------------------------------------------------------------
415,323 141,440 556,763
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (415,035) (140,721) (555,756)
Accumulated development stage deficit,
beginning of period (140,721) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated development stage deficit,
end of period (555,756) (140,721) (555,756)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-39
Homebase Work Solutions Ltd.
[a development stage company]
STATEMENTS OF CASH FLOWS
[expressed in Canadian dollars]
Cumulative period
from inception,
Three-month 101-day period September 22,
period ended ended 1998,
March 31, December 31, to March 31,
1999 1998 1999
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period (415,035) (140,721) (555,756)
Add items not affecting cash
Depreciation and amortization 30,326 -- 30,326
First preferred series A share interest
accretion [note 5] 21,956 11,683 33,639
First preferred series A share dividend
expense [note 5] 28,125 -- 28,125
- ------------------------------------------------------------------------------------------------------------------------------------
(334,628) (129,038) (463,666)
Net change in non-cash working capital
balances related to operations 158,360 (35,558) 122,802
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (176,268) (164,596) (340,864)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (8,250) (1,900) (10,150)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (8,250) (1,900) (10,150)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of preferred shares -- 225,000 225,000
Proceeds from issuance of common shares 300,000 8,212 308,212
Promissory note payable to
InfoCast Corporation 150,000 -- 150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 450,000 233,212 683,212
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash during the period 265,482 66,716 332,198
Cash, beginning of period 66,716 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 332,198 66,716 332,198
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-40
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
1. NATURE OF OPERATIONS
Incorporation
Homebase Work Solutions Ltd. [the "Company"] was incorporated on September 22,
1998 under the Alberta Corporations Act. The Company is in the development stage
and is engaged in the development of information delivery technologies.
Economic dependence
In May 1999, the Company was acquired by InfoCast Corporation ["InfoCast"], a
company also in the development stage [note 8]. As a result of the Company's
limited financial resources, the Company is economically dependent upon
InfoCast.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which conform in all material respects
with accounting principles generally accepted in the United States ["US GAAP"],
except as outlined in note 12. The preparation of financial statements in
accordance with such principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could vary from the estimates that were used.
The Company's significant accounting policies are summarized as follows:
Fiscal periods presented
The Company has not yet chosen a year end. The financial periods reported in
these financial statements conform with those of the Company's acquirer,
InfoCast [note 8].
F-41
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation. If it is
determined that a fixed asset is not recoverable over its estimated useful life,
the fixed asset will be written down to its net recoverable value. Maintenance
and repairs are charged to expenses as incurred. Gains and losses on disposition
of fixed assets are included in income. Depreciation is provided for at the
following annual rate and method:
Office furniture and equipment 30% declining balance
Software distribution rights
Software distribution rights are recorded at cost less accumulated amortization.
If it is determined that a software distribution right is not recoverable over
its estimated useful life, the software distribution right will be written down
to its net recoverable value.
Amortization is provided on a straight-line basis over two years.
Research and development
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria and are expensed as incurred. Research costs are expensed as
incurred.
Income taxes
The Company follows the tax liability method of income tax allocation.
F-42
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
3. FIXED ASSETS
Fixed assets consist of the following:
March 31, 1999
------------------------------------------------
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Office furniture and equipment 10,150 507 9,643
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
------------------------------------------------
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Office furniture and equipment 1,900 -- 1,900
- ------------------------------------------------------------------------------------------------------------------------------------
4. SOFTWARE DISTRIBUTION RIGHTS
Software distribution rights consist of the following:
March 31, 1999
--------------------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Facet Decisions software distribution rights 218,385 28,719 189,666
Facet Petroleum software distribution rights 200,678 1,100 199,578
- ------------------------------------------------------------------------------------------------------------------------------------
419,063 29,819 389,244
- ------------------------------------------------------------------------------------------------------------------------------------
Pursuant to a licensing and distribution agreement dated March 7, 1999 between
the Company and Facet Decisions Inc. ["Facet Decisions"], a private British
Columbia company, the Company acquired the exclusive right in the telework
market to distribute Facet Decisions' computer software for a period of two
years in consideration for 6,910 common shares of the Company valued at
$218,385. The software subject to the agreement includes Cause&Effect Complex
Decision Support Software and optional modules, HeadsUp Business Intelligence
Software and optional modules, FastTracks Methodology and Decision Frameworks
Industry Applications
F-43
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
["Facet Decisions' Software"]. In addition, all sales of Facet Decisions'
Software to the Company will be discounted by 30% from Facet Decisions'
published prices.
Pursuant to a licensing and distribution agreement dated March 30, 1999 between
the Company and Facet Petroleum Solutions Inc. ["Facet Petroleum"], a private
British Columbia company, the Company acquired the exclusive right in the
telework market to distribute Facet Petroleum's Telework Operational Data Store
["TODS"] software for a period of two years in consideration for 6,910 common
shares of the Company valued at $200,678. In addition, all sales of the TODS
software to the Company will be discounted by 50% from Facet Petroleum's
published prices.
The ascribed value of the shares issued to Facet Decisions and Facet Petroleum
is based on the 50,000 total InfoCast shares received by Facet Decisions and
Facet Petroleum upon the acquisition of the Company by InfoCast [note 8] and the
market price of the InfoCast shares on the effective dates of the respective
licensing and distribution agreements with Facet Decisions and Facet Petroleum.
A principal shareholder, director and officer of the Company is a director of
Facet Decisions and Facet Petroleum.
5. CAPITAL STOCK
Authorized
The Company is authorized to issue an unlimited number of common shares and an
unlimited number of first and second preferred shares.
First and second preferred shares may be issued in series and the directors of
the Company may fix, before issuance, the rights, privileges, restrictions and
conditions attached thereto.
F-44
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
Issued and outstanding
Shares Amount
# $
- ------------------------------------------------------------------------------------------------------------------------------------
Common shares
On incorporation, issued for cash 1,000 1
Issued for cash, pursuant to a private placement 820,180 8,211
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as at December 31, 1998 821,180 8,212
Issued pursuant to a private placement 120,000 300,000
Issued for acquisition of software distribution rights [note 4] 13,820 419,063
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as at March 31, 1999 955,000 727,275
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
# $
- ------------------------------------------------------------------------------------------------------------------------------------
First preferred series A shares
Issued for cash, pursuant to a private placement
dated November 10, 1998 45,000 225,000
Interest accretion to redemption price -- 11,683
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as at December 31, 1998 45,000 236,683
Interest accretion to redemption price -- 21,956
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as at March 31, 1999 45,000 258,639
- ------------------------------------------------------------------------------------------------------------------------------------
First preferred series A units
Series A of the first preferred shares were issued in units. Each unit consisted
of 2,000 redeemable first preferred series A shares, 3,000 common share purchase
warrants, and 1,500 penalty common share purchase warrants. Each first preferred
series A share was required to be redeemed by the Company by December 31, 1999
at $7.50 per share and commanded 50% cumulative dividends commencing January 1,
1999. The Company has recorded first preferred series A share interest expenses
of $21,956 for the three-month period ended March 31, 1999 and $11,683 for the
101-day period ended December 31, 1998 based on the accretion of the first
preferred series A shares from the $5.00 issuance price to the December 31, 1999
$7.50 redemption price using the effective yield method. In addition, the
Company has recorded first preferred Series A share dividend expenses of $28,125
in respect of the three-month period ended March 31, 1999. The first preferred
series A shares were acquired by InfoCast [note 8].
F-45
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
Each common share purchase warrant entitled the holder thereof to purchase one
common share of the Company at $5.00 per share. The common share purchase
warrants would have expired 30 days subsequent to the redemption of the first
preferred series A shares in proportion to such redemption. Each penalty common
share purchase warrant entitled the holder to purchase one common share of the
Company at $5.00 per share. The penalty common share purchase warrants would
have vested three years after the issuance of the first preferred series A units
in proportion to the number of first preferred series A shares that had not been
redeemed at that time, and would have expired 30 days subsequent to the
redemption of the first preferred series A shares in proportion to such
redemption. The outstanding 67,500 common share purchase warrants and 33,750
penalty common share purchase warrants of the Company were acquired by InfoCast
[note 8].
6. PROMISSORY NOTE PAYABLE TO INFOCAST CORPORATION
The promissory note payable to InfoCast [note 8] bears interest at prime plus
1%, is secured by a general security agreement covering all assets of the
Company and is due on demand. No interest was paid by the Company on the note
during the three-month period ended March 31, 1999. The note was repaid during
May 1999.
7. DUE TO SHAREHOLDERS
Amounts due to shareholders are payable on demand and are non-interest bearing.
8. ACQUISITION BY INFOCAST CORPORATION
Pursuant to a share purchase agreement dated May 13, 1999, all of the Company's
outstanding common shares, first preferred series A shares, common share
purchase warrants and penalty common share purchase warrants were acquired by
InfoCast in consideration for 3.4 million exchangeable shares of InfoCast Canada
Corporation ["InfoCast Canada"], a 100% owned subsidiary of InfoCast. The
InfoCast Canada exchangeable shares are convertible into InfoCast common shares
on a one-for-one basis at no additional consideration. InfoCast is a development
F-46
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
stage technology company traded on the NASDAQ OTC Bulletin Board and is engaged
in the research and development of information delivery technologies.
As a condition of the closing of the share purchase agreement, InfoCast will pay
$210,000 to officers of the Company and must pay an additional $210,000 to the
officers of the Company if InfoCast completes a private placement financing for
gross proceeds of at least US$1,000,000 or completes a letter of credit
financing of at least US$500,000.
9. NATIONAL ENVIRONMENTAL POLICY INSTITUTE FUNDING
During the three-month period ended March 31, 1999, the Company paid US$25,000
to the National Environmental Policy Institute ["NEPI"], a United States based
non-profit environmental lobbyist group, to assist NEPI's efforts in promoting
telework policies in the United States. In addition, as at March 31, 1999, the
Company has committed an additional US$70,000 in funding to NEPI which has been
provided for in the accounts.
10. INCOME TAX LOSS CARRYFORWARDS
As at March 31, 1999, the Company has accumulated non-capital losses for
Canadian income tax purposes of approximately $319,000 which are available to
reduce future years' taxable income. The future income tax benefits associated
with these non-capital losses have not yet been recognized in the accounts.
The loss carryforwards will expire as follows:
$
- ----------------------------------------------------------
2005 126,000
2006 193,000
- ----------------------------------------------------------
319,000
- ----------------------------------------------------------
F-47
Homebase Work Solutions Ltd.
[a development stage company]
NOTES TO FINANCIAL STATEMENTS
[expressed in Canadian dollars]
March 31, 1999
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
12. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which conform in all material respects
with US GAAP except as follows:
Interest accretion and dividends on first preferred shares
Under US GAAP, first preferred share interest accretion and dividends payable
are charged directly to shareholders' equity. Accordingly, the net loss would
have decreased by $50,081 in respect of the three-month period ended March 31,
1999 [101-day period ended December 31, 1998 - $11,683].
F-48
AUDITORS' REPORT
To the Shareholders of
APPLIED COURSEWARE TECHNOLOGY INC.
We have audited the balance sheet of Applied Courseware Technology Inc., as at
August 31, 1998 and the statements of income and retained earnings together with
the statement of changes in financial position for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
The accompanying financial statements, in our opinion, do not draw attention
explicitly to doubts concerning the company's ability to realize its assets and
discharge its liabilities in the normal course of business. These doubts arise
because it is uncertain whether the company will be able to generate sufficient
revenues to meet it's long term debt of $670,604. and also because of the
recurring losses in the past three years. It is not known whether the company's
research and development product can realized the projected revenues.
In our opinion, except for the omission of the disclosure described in the
preceding paragraph, these financial statements present fairly in all material
respects, the financial position of the company as at August 31, 1998 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
/s/ Boudreau Porter Hetu
.......................................
CERTIFIED GENERAL ACCOUNTANTS
Moncton, New Brunswick
March 5, 1999
F-49
APPLIED COURSEWARE TECHNOLOGY INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED AUGUST 31, 1998 1998 1997
---- ----
REVENUES $155,406 $ 279,471
---------- ---------
EXPENSES
Advertising and promotion 44,814 21,559
Bad debt 53,888 --
Amortization 15,152 22,393
Commissions 19,890 4,465
Dues and fees 820 6,785
Equipment rental 3,946 1,682
Insurance 3,675 136
Interest and bank charges 11,452 6,627
Interest on long term debt 14,131 3,106
Meals and entertainment 6,248 9,635
Office expenses and postage 11,106 8,678
Printing materials 10,225 30,507
Production Distribution 647 14,072
Professional fees 23,776 26,571
Rent and electricity 6,477 9,857
Repairs and maintenance 137 313
Salaries and benefits 132,801 153,896
Sub contracting -- 44,566
Telephone 11,037 9,802
Trade shows, seminars and direct mail 16,818 16,019
Travel and accommodations 47,146 82,767
Vehicle lease 3,942 --
---------- ---------
438,128 473,436
---------- ---------
Loss before income taxes (282,722) (193,965)
Income taxes - recovered (1,287) --
Income taxes - deferred (90,893) (58,663)
---------- ---------
Net (Loss) (190,542) (135,302)
Retained Earnings, beginning of year 251,230 386,532
---------- ---------
Retained Earnings, end of year $ 60,688 $ 251,230
---------- ---------
See accompanying notes to the financial statements.
F-50
APPLIED COURSEWARE TECHNOLOGY INC.
BALANCE SHEET
AUGUST 31, 1998 1998 1997
- --------------- ---- ----
ASSETS
CURRENT
Accounts receivable $ 108,549 $ 138,856
Prepaid expenses -- 5,010
Investment tax credit receivable 301,361 444,879
---------- ----------
409,910 588,745
Capital (Note 3) 32,567 46,805
Deferred development costs (Notes 2(b) & 4) 578,720 329,205
Deferred income taxes (Notes 2(c)& 5) 197,770 106,877
Deferred investment tax credit 149,942 149,108
---------- ----------
$1,368,909 $1,220,740
---------- ----------
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $ 179,226 $ 835
Note payable 60,000 60,000
Deferred revenue 100,000 --
Accounts payable & accrued liabilities 101,072 149,613
Due to shareholders 38,404 --
Current portion of long term debt 196,429 300,000
---------- ----------
675,131 510,448
Long term debt (Note 7) 474,175 250,000
Due to shareholders (Note 8) 158,914 209,061
1,308,220 969,509
Contingencies (Note 9) -- --
---------- ----------
1,308,220 969,509
SHAREHOLDERS' EQUITY
Capital stock (Note 10) 1 1
Retained earnings 60,688 251,230
---------- ----------
60,689 251,231
---------- ----------
$1,368,909 $1,220,740
---------- ----------
APPROVED ON BEHALF OF THE BOARD:
................................DIRECTOR.
See accompanying notes to the financial statements.
F-51
APPLIED COURSEWARE TECHNOLOGY INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED AUGUST 31, 1998 1998 1997
---- ----
FUNDS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net (Loss) $(190,542) $(135,302)
Amortization 15,152 22,393
Deferred income taxes (90,893) (58,663)
--------- ---------
(266,283) (171,572)
CHANGES IN NON CASH WORKING
CAPITAL ACCOUNTS
Accounts receivable 30,307 35,626
Prepaid expenses 5,010 (5,010)
Investment tax credit 143,518 (86,473)
Note payable -- 15,000
Deferred revenue 100,000 --
Accounts payable (48,541) 53,209
Due to Shareholders 38,404 --
--------- ---------
2,415 (159,220)
--------- ---------
FINANCING ACTIVITIES
Proceeds from long term debt 125,000 550,000
Interest charges capitalized 5,604 --
Repayment of long term debt (10,000) --
Advances from shareholders -- 81,422
Repayment to shareholders (50,147) --
--------- ---------
70,457 631,422
--------- ---------
INVESTING ACTIVITIES
Additions to capital assets (914) (3,660)
Additions to deferred development costs (249,515) (192,967)
Increase in deferred investment tax credit (834) (47,267)
--------- ---------
(251,263) (243,894)
--------- ---------
Increase (Decrease) In Cash (178,391) 228,308
Cash and Equivalents (Deficiency),Beginning (835) (229,143)
--------- ---------
Cash and Equivalents (Deficiency),Ending $(179,226) $ (835)
--------- ---------
Represented by:
Bank Indebtedness $(179,226) $ (835)
--------- ---------
See accompanying notes to the financial statements.
F-52
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 1 LEGAL STATUS
The company was incorporated under the Corporation Act of the Province
of Newfoundland on August 22, 1988 under the name of Norcos Operations
Inc. The company applied for and was granted a name change to Applied
Courseware Technology (A.C.T.) Inc., on April 11, 1990. The Company was
registered as an extra- provincial corporation under the Business
Corporations Act of the Province of New Brunswick on January 6, 1997.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
(A) Capital assets are recorded at cost, net of investment tax credit
and amortized over the estimated useful lives of the assets as
follows:
Building 5% Declining Balance
Furniture and Equipment 20% Declining Balance
Computer Equipment 30% Declining Balance
Computer Software 50% Straight line
NOTE: Assets acquired during the current year are amortized at 50%
of the stated rates.
(B) Research and Software Development Costs
Research costs are expensed as incurred. Software Development costs
undertaken with a reasonable expectation of commercial success and
of future benefits arising from the work are recorded at cost and
deferred to future period for subsequent amortization on a straight
line basis over a period not exceeding 3 years. Amortization will
commence with commercial production of the software. Software
development costs are recorded net of government grants and
investment tax credits.
(C) Income Taxes
The Company has always accounted for income taxes on the tax
payable basis which only recognizes the current income tax expense.
Effective September 1, 1995, management adopted the tax allocation
basis which provides a more realistic approach of matching the tax
effect of a temporary difference in the period such a difference
occurs.
F-53
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
(C) Income Taxes (continued)
As indicated above, the company accounts for income taxes using the
tax allocation basis effective September 1, 1995 by charging
against its net income for accounting purposes income taxes
currently payable and also income taxes deferred by claiming
certain costs for income tax purposes in amounts differing from the
related costs charged to income, and by recognizing the tax
benefits of losses available for carry forward. The accumulated
total of such tax deferrals is reflected in the balance sheet as
deferred income taxes.
NOTE 3 CAPITAL ASSETS Accumulated 1998 1997
Amorti- Net Book Net Book
Cost zation Value Value
---- ------ ----- -----
Furniture & Equipment $ 38,625 $ 20,581 $ 18,044 $ 22,155
Computer Equipment 86,331 72,162 14,169 19,958
Computer Software 35,016 34,662 354 4,692
---------------------------------------------
$159,972 $127,405 $ 32,567 $ 46,805
---------------------------------------------
NOTE 4 DEFERRED DEVELOPMENT COSTS
1998 1997
AT COST
Software Development $1,265,451 $ 1,013,026
Less: Government Grants (185,733) (185,733)
Investment Tax Credits (500,998) (498,088)
------------------------
$ 578,720 $ 329,205
------------------------
As explained in Note 2 (b), amortization will commence with
commercial production of the software product and will be recorded
on a straight line basis over a period of three years.
F-54
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 5 INCOME TAXES
The Company is a Canadian Controlled Private Corporation (CCPC) as
defined under the Canadian Income Tax Act. The combined Federal and
Provincial tax rate on the first $200,000 of Canadian taxable income is
20.12%.
A tax liability may be reduced by the presence of investment tax credit
and unused losses from prior years. These losses are created by the
temporary differences between the financial reporting basis and the
income tax basis of a company's assets and liabilities. The major
temporary differences that give rise to these losses are depreciation,
amortization, gains or losses on dispositions of capital assets and
development costs.
1998 1997
Net loss before taxes $(282,722) $(193,965)
Timing differences
- Excess of depreciation over
capital cost allowance 1,527 4,355
- Excess of Research and
Development expenditures for
income tax purposes over
accounting purposes (77,294) (113,937)
Permanent differences
- Non deductible expense 3,124 11,979
--------- ---------
Net Loss for tax purposes $(355,365) $(291,568)
--------- ---------
F-55
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 5 INCOME TAXES (continued)
The deferred income taxes asset of $197,770 as at August 31, 1998
represents the tax benefit of the net loss for tax purposes at the rate
of 20.12%. The total amount of losses incurred by the company and
available to reduce taxable income of future years amounts to $982,951
and expires in the years 2003 $(336,018) and 2004 $(291,568) and 2005
$(355,365).
NOTE 6 BANK INDEBTEDNESS 1998 1997
Bank overdraft $179,226 $ 835
The Canadian Imperial Bank of Commerce bank indebtedness is secured by a
general assignment of accounts receivable, all personal property of the
business and by the personal guarantee of the shareholders. The bank
charges bank prime plus 2% interest on the company's bank overdraft.
NOTE 7 LONG TERM DEBT
1998 1997
Canadian Imperial Bank of Commerce
Demand Instalment loan, repayable
at $5,000 per month plus interest
at prime plus 2% (see Note 6 for security). $240,000 $250,000
Province of New Brunswick, Department
of Economic Development and Tourism,
Debenture loan, repayable at $10,714 per
month without interest beginning in
December 1998. Maturity date March 31,
2001. The loan does not bear any
interest until or unless the security
shall become enforceable. The loan is
secured by a fixed and specific mortgage
on all equipment and personal property
and by a floating charge on all undertaking. 300,000 300,000
F-56
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 7 LONG TERM DEBT (continued) 1998 1997
Business Development Bank of Canada
authorized term loan of $250,000, non disbursed
amount of $125,000, repayable at $4,200. per
month plus interest at 7.1% plus a variance.
Maturity date October 23, 2003. The loan
is secured by a general security agreement
providing a security interest in all present and
after acquired personal property and
specifically including a charge on equipment,
furniture and fixture and a floating charge over
residential assets subject to prior charge by the
Canadian Imperial Bank of Commerce and the
Province of New Brunswick. 130,604 --
-------------------
670,604 550,000
-------------------
Principal due within one year 196,429 300,000
-------------------
$474,175 $250,000
-------------------
Principal repayment over the next four years will be as follows:
1999 $196,429
2000 238,971
2001 175,204
2002 60,000
NOTE 8 DUE TO SHAREHOLDERS 1998 1997
Balance, beginning of year $209,061 $127,639
Advances during the year 38,336 117,152
--------------------
247,397 244,791
Repayments during the year 88,483 35,730
---------------------
Balance, end of year $158,914 $209,061
---------------------
The loan has no set term of repayment or interest and has been assigned
as security to the debenture loan with the Department of Economic
Development and Tourism.
F-57
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 9 CONTINGENCIES
A) Legal proceedings
The Company has received claims in respect of the following:
1. A claim by Janice Yates for compensation with respect to her
termination as an employee of the company on or about July 17, 1996.
2. Claims by Janice Yates, Lee McAboy and the consulting firm of McAboy,
Yates Corporation for their alleged loss of interest in the company
as a result of them no longer participating in the business.
Because the amounts in issue are not clear, the extent of financial
liability cannot be determined. Management takes the position that both
Yates and McAboy are in breach of the contract.
No provision has been made in these financial statements since it is not
possible to determine the outcome of this threatened litigation. If a
settlement should occur concerning this contingency, it will be recorded
as a charge to the statement of income in the period in which it takes
place.
B) Revenue Canada Audit
1. During the year, Revenue Canada completed their examination of the
Scientific Research and Experimental Development ( R & D) claim for
the fiscal year ended August 31, 1996. Certain expenses were
disallowed for R & D purposes and as a result the company's claim for
investment tax credit was reduced by $108,287. However, the net loss
for income tax purposes was increased by $96,386. The financial
statements were adjusted by increasing the deferred income taxes by
$19,393.
2. As noted in the notes to the financial statements for the year ended
August 31, 1997 the company has filed notice of objection to appeal
Revenue Canada Notice of Assessments for the years ending August 31,
1994 and 1995. The appeal have not been resolved by Revenue Canada as
of the date of these financial statements.
F-58
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 10 CAPITAL STOCK
1998 1997
AUTHORIZED
5,000 common shares,
without par value.
ISSUED AND FULLY PAID
100 common shares. $ 1 $ 1
NOTE 11 DIVIDENDS AND SHARES RESTRICTIONS
Covenants respecting the company`s long term debt restrict the company`s
ability to declare or pay dividends on its capital stock, redeem any of
its capital stock or allow the ownership in respect of the majority of
the shares of any class in its capital stock to change, without the
prior written consent of the lender.
NOTE 12 SUBSEQUENT EVENT
On November 5, 1998, Revenue Canada completed their examination of the R
& D claim for the fiscal year ended August 31, 1997. The claim was
accepted as filed and the company received a refund of $152,607.
NOTE 13 GOVERNMENT ASSISTANCE
A) ATLANTIC CANADA OPPORTUNITY AGENCY
Under the ACOA Action Program, the company has received financial
assistance as contribution towards the implementation of the company`s
marketing plan. The duration of the project was from August 1, 1994 to
August 1, 1997. During the year, $8,832 (1997 - $18,212) was credited to
revenues. The assistance is not conditionally repayable.
B) CANADIAN INTERNATIONAL DEVELOPMENT AGENCY
During the year 1997, the Company received financial assistance of
$114,500 representing contribution of 38% of expenses resulting from the
participation in an industrial cooperation project (Training and
Technology Facility) in Trinidad and Tobago. The assistance is repayable
if the company obtains contracts or realizes export sales of at least
$5.0 million as a direct result of the contributions.
F-59
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
NOTE 13 GOVERNMENT ASSISTANCE (continued)
C) INDUSTRY CANADA
Pursuant to a Program for Export Market Development (PEMD), the Company
has received financial assistance as contribution toward eligible costs
incurred in establishing a market development strategy for a software
product. The assistance is repayable if the Company derived sales in
excess of a predefined level during each of the next fiscal years.
During the year, $19,956 (1997 - $50,000) was credited to revenues.
NOTE 14 COMPARATIVE FIGURES
Certain comparative figures have been revised to conform with current
statement format.
F-60
NOTICE TO READER
To the Directors of
APPLIED COURSEWARE TECHNOLOGY INC.
We have compiled the Interim Balance Sheet of Applied Courseware Technology
Inc., as at June 30, 1999 and June 30, 1998 and the Interim Statement of Income
and Retained Earnings together with the Interim Statement of Cash Flows for the
ten month period then ended from information provided from Management. We have
not audited, reviewed or otherwise attempted to verify the accuracy or
completeness of such information.
Accordingly, readers are cautioned that these Interim Financial Statements may
not be appropriate for their purposes.
/s/ Boudreau Porter Hetu
.........................................
CERTIFIED GENERAL ACCOUNTANTS
Moncton, New Brunswick
August 30, 1999
F-61
APPLIED COURSEWARE TECHNOLOGY INC.
INTERIM STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER 1999 1998
---- ----
REVENUES
Sales and Consulting - InfoCast Corporation $ 498,000 $ --
Sales and Consulting - Others 93,373 136,223
Interest 4,270 --
-------------------------
595,643 136,223
-------------------------
EXPENSES
Advertising and promotion -- 42,071
Amortization 11,349 12,615
Commissions -- 17,850
Due and Fees 4,765 500
Equipment rental 6,894 6,291
Insurance 2,223 2,760
Interest and bank charges 17,197 13,949
Interest on long term debt 36,582 17,023
Meals and entertainment 3,107 4,177
Office expenses and postage 5,832 17,716
Printing materials -- 25,562
Production distribution 3,557 647
Professional fees 40,315 35,257
Rent and electricity 10,785 10,200
Repairs and maintenance 92 138
Salaries and benefits 197,314 253,338
Sub contracting 76,092 26,237
Telephone 12,219 17,438
Trade shows, seminars and direct mail 1,785 16,818
Travel and accommodations 43,111 28,574
Vehicle lease 4,248 3,092
-------------------------
477,467 552,253
-------------------------
Income (Loss) Before Income Taxes 118,176 (416,030)
Income Taxes Recovered -- 1,287
-------------------------
Net Income (Loss) 118,176 (414,743)
Retained Earnings, (Deficit) Beginning of the period (197,082) 144,352
-------------------------
(Deficit), End of the period $ (78,906) $ (270,391)
-------------------------
See accompanying notes to the interim financial statements.
F-62
APPLIED COURSEWARE TECHNOLOGY INC.
INTERIM BALANCE SHEET - "SEE NOTE 2 - BASIS OF PRESENTATION"
AS AT JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER 1999 1998
ASSETS
CURRENT
Bank $ 27,804 $ --
Accounts receivable 7,998 188,877
Prepaid expenses -- 5,010
Investment tax credit receivable 153,024 292,574
---------------------
188,826 486,461
Capital 53,928 35,104
Deferred development costs 728,662 478,313
---------------------
$971,416 $999,878
---------------------
LIABILITIES
CURRENT
Bank indebtedness (Note 3) $ -- $161,207
Notes payable (Note 4) 200,000 60,000
Accounts payable & accrued liabilities 164,588 201,289
Current portion of long term debt 490,000 675,000
---------------------
854,588 1,097,496
Long term debt (Note 5) -- --
Due to shareholders 195,733 172,772
---------------------
1,050,321 1,270,268
---------------------
CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Capital Stock (Note 7) 1 1
Deficit (78,906) (270,391)
---------------------
(78,905) (270,390)
---------------------
$ 971,416 $ 999,878
---------------------
APPROVED ON BEHALF OF THE BOARD
...........................................................DIRECTOR.
See accompanying notes to the interim financial statements.
F-63
APPLIED COURSEWARE TECHNOLOGY INC.
INTERIM STATEMENT OF CASH FLOWS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER 1999 1998
---- ----
FUNDS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net Loss $118,176 $(414,743)
Amortization 11,349 12,615
-----------------------
129,525 (402,128)
CHANGES IN NON CASH WORKING
CAPITAL ACCOUNTS
Accounts receivable 551 (50,021)
Investment tax credit 148,337 152,305
Notes payable 140,000 --
Accounts payable 3,516 51,676
-----------------------
421,929 (248,168)
-----------------------
FINANCING ACTIVITIES
Proceeds from long term debt -- 125,000
Repayment of long term debt (180,604) --
Repayment to shareholders (1,585) (36,289)
-----------------------
(182,189) 88,711
-----------------------
INVESTING ACTIVITIES
Additions to capital assets (32,710) (915)
-----------------------
Increase (Decrease) In Cash 207,030 (160,372)
Cash and Equivalents (Deficiency),Beginning (179,226) (835)
-----------------------
Cash and Equivalents (Deficiency),Ending $ 27,804 $(161,207)
-----------------------
Represented by:
Bank $ 27,804 $ --
Bank Indebtedness 18,751 (161,207)
-----------------------
$ 27,804 $(161,207)
-----------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period $ 52,564 $ 30,518
-----------------------
See accompanying notes to the interim financial statements.
F-64
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 1 LEGAL STATUS
The company was incorporated under the Corporation Act of the Province
of Newfoundland on August 22, 1988 under the name of Norcos Operations
Inc. The company applied for and was granted a name change to Applied
Courseware Technology (A.C.T.) Inc., ("A.C.T."or the "Company")on April
11, 1990. The Company was registered as an extra-provincial corporation
under the Business Corporations Act of the Province of New Brunswick on
January 6, 1997. The Company was continued under the Canada Business
Corporations Act on July 9, 1998 and received permission to change it's
name to Applied Courseware Technology Inc.
NOTE 2 BASIS OF PRESENTATION
The Company's financial statements 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 in the last three years, has a working
capital deficiency of $865,762 and is in default of its bank covenants
(Notes 3 & 5). The ability of the Company to continue as a going concern
is uncertain and is dependent on the continued financial support of its
shareholders and creditors, the successful development and
implementation of the Company's software and the Company's ability to
arrange financing. The outcome of these matters cannot be predicted at
this time.
These financial statements do not include any adjustments to the
carrying values and classification of assets and liabilities should the
Company be unable to continue as a going concern.
The financial statements have been prepared in accordance with
accounting principles generally accepted in Canada which conform in all
material respects with accounting principles generally accepted in the
United States (US "GAAP") except as outlined in Note 11.
F-65
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 3 BANK INDEBTEDNESS
1999 1998
Bank overdraft $ -- $161,207
The Canadian Imperial Bank of Commerce bank indebtedness is secured by a
general assignment of accounts receivable, all personal property of the
business and by the personal guarantee of the shareholders. The bank
charges bank prime plus 2% interest on the company's bank overdraft.
According to the Company's banking agreement, the bank overdraft is
limited to the lessor of i) $150,000 and ii) the sum of 75% of the
accounts receivable from the Canadian Government and 50% of the accounts
receivable less priority claims and non-government accounts receivable
over 90 days past due. The Company is in default of the agreement under
the limit imposed under ii) above.
NOTE 4 NOTES PAYABLE
1999 1998
InfoCast Corporation $140,000 $ --
Mary Costello 60,000 60,000
-----------------------
$200,000 $ 60,000
-----------------------
As indicated in Note 9, InfoCast Corporation, pursuant to a letter of
intent dated February 10, 1999 intends to purchase a 100% interest in
Applied Courseware Technology Inc.
F-66
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 5 LONG TERM DEBT
1999 1998
Canadian Imperial Bank of Commerce ("CIBC")
Demand Instalment loan, repayable
at $5,000 per month plus interest
at prime plus 2% (see Note 3 for security). $190,000 $250,000
Province of New Brunswick, Department
of Economic Development and Tourism,
Debenture loan, repayable at $10,714 per
month without interest beginning in
December 1998. Maturity date March 31,
2001. The loan does not bear any
interest until or unless the security
shall become enforceable. The loan is
secured by a fixed and specific mortgage
on all equipment and personal property
and by a floating charge on all undertaking. 300,000 300,000
Business Development Bank of Canada
authorized term loan of $250,000, non disbursed
amount of $125,000 repayable at $4,200. per
month plus interest at 7.1% plus an interest
adjustment factor. Maturity date
October 23, 2003. The loan is secured
by a general security agreement providing
a security interest in all present and
after acquired personal property and
specifically including a charge on equipment,
furniture and fixture and a floating charge over
residential assets subject to prior charge by
the Canadian Imperial Bank of Commerce and the
Province of New Brunswick. -- 125,000
-------------------
490,000 675,000
Principal due within one year 490,000 675,000
-------------------
$ -- $ --
-------------------
F-67
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 5 LONG TERM DEBT (continued)
According to the Company's banking agreement with the CIBC, the Company
is required to maintain a 2:1 debt to equity ratio. The Company was in
default of this covenant during 1999 and 1998.
NOTE 6 CONTINGENCIES
As noted in the notes to the financial statements for the year ended
August 31, 1997, the Company has filed notice of objection to appeal
Revenue Canada Notice of Assessments for the year ending August 31, 1994
and 1995. The appeal has not been resolved by Revenue Canada as of the
date of these financial statements. The investment tax credit receivable
on the balance sheet includes $68,621 related to amounts being appealed
or in dispute with Revenue Canada.
NOTE 7 CAPITAL STOCK
1999 1998
AUTHORIZED
Unlimited number of common shares
without par value. Unlimited number
of preference shares without par value.
ISSUED AND FULLY PAID
100 common shares. $ 1 $ 1
NOTE 8 DIVIDENDS AND SHARES RESTRICTIONS
Covenants respecting the Company's long term debt restrict the Company's
ability to declare or pay dividends on its capital stock, redeem any of
its capital stock or allow the ownership in respect of the majority of
the shares of any class in its capital stock to change without the prior
written consent of the lender.
F-68
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 9 SUBSEQUENT EVENT
Pursuant to a Letter of Intent dated February 10, 1999 between the
Company and InfoCast Corporation ("InfoCast"), InfoCast intended to
purchase a 100% interest in A.C.T. in consideration for (i) $280,000
cash, (ii) 750,000 common shares of InfoCast and (iii) the settlement of
the Company's debts. Pursuant to subsequent negotiations, the cash
component of the consideration was changed from $280,000 to nil. The
transaction is subject to satisfactory due diligence. During the period,
InfoCast settled the Company's debt to the Business Development Bank of
Canada in consideration for note secured by general security agreement
and made cash advances to A.C.T. totaling $450,000 to fund certain
development expenditures incurred on behalf of InfoCast.
NOTE 10 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP")
which conforms in all material respects with accounting principles
generally accepted in the United States ("US GAAP") except as follows:
Deferred Development Costs
Under Canadian GAAP, research and development costs of companies in the
development stage may be capitalized if management expects the amounts
to be recovered through future revenues. Under US GAAP, research and
development incurred prior to the establishment of technological
feasibility are expensed as incurred. Under Canadian GAAP deferred
development costs were $728,662 as at June 30, 1999 (1998 - $478,313).
As a result, the significant income recognition and presentation
differences between Canadian and US GAAP would be as follows:
F-69
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 10 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES
For the ten month period
ended June 30
1999 1998
Net loss determined in accordance
with Canadian GAAP $ (81,824) $(414,743)
Research and Development costs
(net of government grants and
investment tax credits) -- --
Net Loss determined in accordance
with US GAAP. $ (81,824) $(414,743)
Deferred development costs (net of
government grants and investment tax
credits) determined in accordance with
Canadian GAAP 728,662 478,313
Adjustment to opening retained earnings (728,662) (478,313)
Expense costs incurred during year -- --
Deferred development costs (net of
government grants and investment tax
credits) determined in accordance with
US GAAP Nil Nil
F-70
APPLIED COURSEWARE TECHNOLOGY INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE TEN MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED) - SEE NOTICE TO READER
NOTE 10 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES
For the ten month period
ended June 30
1999 1998
Cash and Cash Equivalents
Under Canadian GAAP, for the purposes of the statement of changes in
financial position, cash and cash equivalents may include bank
overdrafts. Under US GAAP, only cash and short-term investments with
original maturities of less than three months would be included in cash
and cash equivalents. Bank overdrafts amounted to $161,207 as at June
30, 1998.
As a result the significant presentation differences between Canadian
and US GAAP would be as follow:
Canadian US Canadian US
GAAP GAAP GAAP GAAP
Cash provided by financing activities (182,189) (182,189) 88,711 88,711
As at June 30
1999 1998
Canadian US Canadian US
GAAP GAAP GAAP GAAP
Cash and cash equivalents, end of period (27,804) 27,804 (161,207) Nil
F-71
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
BASIS OF PRESENTATION
The unaudited pro-forma consolidated financial information of InfoCast
Corporation [formerly Virtual Performance Systems Inc.] [a development stage
company] [the "Company"] set forth below gives effect to the acquisitions of
Homebase Work Solutions Ltd. ["Homebase"] and Applied Courseware Technology
(A.C.T.) Inc. ["ACT"] as if the Company had acquired ACT on June 30, 1999 for
the purpose of the pro-forma consolidated balance sheet and as if the Company
had acquired Homebase and ACT as of January 1, 1998 for purposes of the
pro-forma consolidated statements of operations for the three-month periods
ended June 30, 1999 and March 31, 1999 [the transition period] and for the year
ended December 31, 1998. Homebase was acquired by the Company on May 13, 1999,
and the acquisition of ACT is expected to close before December 31, 1999.
The pro-forma consolidated financial statements are not necessarily indicative
of the results that actually would have occurred had the Company acquired
Homebase and ACT on the dates indicated or which would be obtained in the
future.
The unaudited pro-forma consolidated information should be read in conjunction
with the audited and unaudited consolidated financial statements of the Company,
the audited financial statements of Homebase and the audited and unaudited
financial statements of ACT appearing elsewhere in this registration statement.
The unaudited pro-forma consolidated balance sheet as of June 30, 1999 has been
prepared from the unaudited consolidated balance sheet of the Company as of June
30, 1999 and the unaudited balance sheet of ACT as of June 30, 1999 after
translation of the ACT balance sheet from Canadian dollars to United States
dollars. The unaudited balance sheet of ACT as of June 30, 1999 has been
prepared in accordance with accounting principles generally accepted in Canada
["Canadian GAAP"].
The unaudited pro-forma statement of operations for the year ended December 31,
1998 and the three-month periods ended March 31, 1999 and June 30, 1999 have
been prepared from the audited and unaudited consolidated statements of
operations of the Company and the audited and unaudited pre-acquisition
statements of operations of Homebase and ACT after translation of their
statements of operations from Canadian dollars to United States dollars. ACT's
unaudited statements of operations for the year ended November 30, 1998, the
three-month period ended February 28, 1999 and the three-month period ended June
30, 1999 were used in respect of the preparation of the pro-forma statements of
operations for the year ended December 31, 1998, the three-month period ended
March 31, 1999 and the three-month period ended June 30, 1999, respectively. The
audited and unaudited statements of operations of Homebase and ACT have been
prepared in accordance with Canadian GAAP.
F-72
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
The pro-forma adjustments do not reflect any operating efficiencies or potential
synergies that may be achievable with respect to the combined companies.
The pro-forma adjustments reflecting the acquisitions of Homebase and ACT under
the purchase method of accounting are based on available financial information
and certain estimates and assumptions. The actual adjustments to the Company's
consolidated financial statements upon consummation of the acquisition of ACT
and the completion of the allocation of the purchase price of Homebase will
depend on a number of factors, including additional financial information at
such time, changes in values and changes in ACT's operating results between the
date of preparation of the unaudited pro-forma consolidated information.
Therefore, it is likely that the actual adjustments will differ from the
pro-forma adjustments. Management of the Company believes that such assumptions
provide a reasonable basis for presenting all of the significant effects of the
transactions contemplated and that the pro-forma adjustments give appropriate
effect to those assumptions and are properly applied in the pro-forma combined
financial statements. Management of the Company also believes that actual
financial position and results of operations will not differ materially from the
pro-forma amounts reflected herein.
F-73
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA CONSOLIDATED BALANCE SHEET - ASSETS
As of June 30, 1999
Applied
Courseware
InfoCast Technology Pro-forma Pro-forma
Corporation (A.C.T.) Inc. adjustment consolidated
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Current
Cash and cash equivalents 1,493,205 18,935 1,512,140
Accounts receivable 114,253 5,447 119,700
Investment tax credit
receivable -- 104,209 104,209
Due from Applied Courseware
Technology (A.C.T.) Inc. 97,120 -- [f] (97,120) --
Prepaid expenses and
refundable deposits 586,968 -- 586,968
- ------------------------------------------------------------------------------------------------------------------------------------
2,291,546 128,591 (97,120) 2,323,017
Capital assets, net 239,197 36,725 275,922
Distribution rights 2,975,000 -- 2,975,000
Completed technology 16,600,291 -- [d] 641,000 17,241,291
In-process research and [d] 220,000
development -- [j] (220,000) --
Trademarks 830,323 -- [d] 243,000 1,073,323
Workforce-in-place 241,904 -- [d] 256,000 497,904
Goodwill, net 5,695,731 -- [d] 2,939,953 8,635,684
Deferred development
costs, net 496,219 [d] (496,219) --
Software license 62,825 -- 62,825
- ------------------------------------------------------------------------------------------------------------------------------------
28,936,817 661,535 3,486,614 33,084,966
- ------------------------------------------------------------------------------------------------------------------------------------
F-74
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA CONSOLIDATED BALANCE SHEET - LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
As of June 30, 1999
Applied
Courseware
InfoCast Technology Pro-forma Pro-forma
Corporation (A.C.T.) Inc. adjustment consolidated
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Current
Accounts payable and
accrued liabilities 2,375,898 112,084 -- 2,487,982
Notes payable -- 40,860 -- 40,860
Due to InfoCast Corporation -- 95,340 [f] (95,340) --
Current portion of long-term
debt -- 333,690 -- 333,690
- ------------------------------------------------------------------------------------------------------------------------------------
2,375,898 581,974 (95,340) 2,862,532
Due to shareholder -- 133,295 -- 133,295
Deferred income taxes 6,699,395 -- 6,699,395
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,075,293 715,269 (95,340) 9,695,222
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Common stock 20,492 1 [d] 750
-- [d] (1) 21,242
Additional paid-in-capital 38,125,727 -- [d] 3,749,250 41,874,977
Deferred compensation (6,448,694) -- (6,448,694)
Warrants 712,800 -- 712,800
Accumulated other
comprehensive loss (14,655) -- (14,655)
Accumulated development
stage deficit (12,534,146) (53,735) [d] 53,735
-- -- [f] (1,780)
-- -- [j] (220,000) (12,755,926)
- ------------------------------------------------------------------------------------------------------------------------------------
19,861,524 (53,734) 3,581,954 23,389,744
- ------------------------------------------------------------------------------------------------------------------------------------
28,936,817 661,535 3,486,614 33,084,966
- ------------------------------------------------------------------------------------------------------------------------------------
F-75
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the three-month period ended June 30, 1999
Homebase Work
Solutions Ltd. Applied
[43-day period Courseware
InfoCast ended Technology Pro-forma Pro-forma
Corporation May 13, 1999] (A.C.T.) Inc. adjustment consolidated
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Other revenue -- -- 293,354 [g] (290,596) 2,758
Interest 23,157 473 -- [e] (1,664) 21,966
- ------------------------------------------------------------------------------------------------------------------------------------
23,157 473 293,354 (292,260) 24,724
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 1,936,815 68,130 167,637 2,172,582
Stock option
compensation 5,829,647 -- -- 5,829,647
Research and
development 730,657 -- -- [g] (339,145) 391,512
Interest and loan fees -- -- 5,633 5,633
Amortization and
depreciation 654,835 16,872 2,312 [c] 546,351
[i] 212,531 1,432,901
First preferred Series A
share interest accretion -- 7,518 -- [b] (7,518) --
First preferred Series A
share dividend expense -- 8,813 -- [b] (8,813) --
- ------------------------------------------------------------------------------------------------------------------------------------
9,151,954 101,333 175,582 403,406 9,832,275
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes (9,128,797) (100,860) 117,772 (695,666) (9,807,551)
Deferred income taxes (198,605) -- -- [c] (156,486) (355,091)
Net income (loss)
for the period (8,930,192) (100,860) 117,772 (539,180) (9,452,460)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 20,035,410 3,400,000 750,000 24,185,410
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
income (loss) per share (0.45) (0.03) 0.16 (0.39)
- ------------------------------------------------------------------------------------------------------------------------------------
F-76
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the three-month period ended March 31, 1999
Applied
Courseware
Technology
(A.C.T.) Inc.
[three-month
Homebase period ended
InfoCast Work February 28, Pro-forma Pro-forma
Corporation Solutions Ltd. 1999] adjustment consolidated
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Other revenue -- -- 8,282 [g] (6,617) 1,665
Interest 4,478 191 [a] (105)
[e] (107) 4,457
- ------------------------------------------------------------------------------------------------------------------------------------
4,478 191 8,282 (6,829) 6,122
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 635,334 221,453 50,179 906,966
Stock option
compensation 2,256,938 -- -- 2,256,938
Research and
development 162,914 -- -- [h] -- 162,914
Interest and loan fees 23,562 155 8,567 32,284
First preferred Series A
share interest accretion -- 14,528 -- [b] (14,528) --
First preferred Series A
share dividend expense -- 18,610 -- [b] (18,610) --
Amortization and
depreciation 9,651 20,066 1,542 [c] 1,187,067
[i] 212,531 1,430,857
- ------------------------------------------------------------------------------------------------------------------------------------
3,088,399 274,812 60,288 1,366,460 4,789,959
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before
income taxes (3,083,921) (274,621) (52,006) (1,373,289) (4,783,837)
Deferred income taxes -- -- -- [c] (340,006) (340,006)
Net loss for the period (3,083,921) (274,621) (52,006) (1,033,283) (4,443,831)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 11,583,995 3,400,000 750,000 15,733,995
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
loss per share (0.27) (0.08) (0.07) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
F-77
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
Homebase Applied
Work Courseware
Solutions Ltd. Technology
[101-day (A.C.T.) Inc.
period ended [year ended
InfoCast December 31, November 30, Pro-forma Pro-forma
Corporation 1998] 1998] adjustment consolidated
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Other revenue 43,446 -- 108,255 151,701
Interest -- 485 2,878 3,363
- ------------------------------------------------------------------------------------------------------------------------------------
43,446 485 111,133 -- 155,064
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 375,302 87,337 266,819 729,458
Research and
development 88,180 -- -- [h] 168,756 256,936
Interest and loan fees -- 130 30,040 30,170
First preferred Series A
share interest accretion -- 7,875 -- [b] (7,875) --
Amortization and
depreciation 3,836 -- 10,214 [c] 4,827,192
[i] 850,124 5,691,366
- ------------------------------------------------------------------------------------------------------------------------------------
467,318 95,342 307,073 5,838,197 6,707,930
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before
income taxes (423,872) (94,857) (195,940) (5,838,197) (6,552,866)
Deferred income taxes -- -- -- (1,390,015) (1,390,015)
Net loss for the period (423,872) (94,857) (195,940) (4,448,182) (5,162,851)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 768,301 3,400,000 750,000 4,918,301
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
loss per share (0.55) (0.03) (0.26) (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
F-78
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
PRO-FORMA ADJUSTMENTS
The unaudited pro-forma consolidated financial statements give effect to the
following pro-forma adjustments:
[a] The elimination of nil and $105 of interest revenue recorded in the
accounts of the Company for the 43-day period ended May 13, 1999 and the
three-month period ended March 31, 1999, respectively, in respect of the
note payable from Homebase to the Company. ACT did not accrue the
corresponding interest expense.
[b] Homebase's first preferred series A shares were purchased by the Company
on May 13, 1999. Accordingly, Homebase's first preferred Series A share
interest accretion of $7,518, $14,528 and $7,875 in respect of the 43-day
period ended May 13, 1999, the three-month period ended March 31, 1999 and
the 101-day period ended December 31, 1998, respectively, have been
eliminated. In addition, Homebase's first preferred Series A share
dividend expenses of $8,813, $18,610 and nil in respect of the 43-day
period ended May 13, 1999, the three-month period ended March 31, 1999 and
the 101-day period ended December 31, 1998, respectively, have been
eliminated.
[c] The amortization of the $17,015,000 of completed technology, $853,000 of
trademarks, $253,000 of workforce-in-place and $5,846,293 of goodwill
created by the purchase of Homebase by the Company over the
pre-acquisition 43-day period ended May 13, 1999, the three-month period
ended March 31, 1999 and the year ended December 31, 1998 on a
straight-line basis utilizing amortization periods of five years in
respect of the completed technology, trademarks and goodwill and three
years in respect of the workforce-in-place. In addition, the amortization
of the $6,898,00 deferred income tax liability [created by the purchase of
Homebase by the Company in respect of the difference between the tax and
accounting basis of the completed technology, trademarks and
workforce-in-place] over the periods of the underlying assets.
[d] The acquisition of ACT by InfoCast. Pursuant to a letter of intent dated
February 10, 1999, as amended during subsequent negotiations and subject
to due diligence, ACT will be acquired by the Company in consideration for
[i] 750,000 common shares of the Company and [ii] the assumption of
certain of ACT's liabilities.
The pro-forma acquisition has been accounted for by the purchase method
whereby the pro-forma purchase price is equal to the ascribed value of the
750,000 common shares. For accounting purposes the common shares of the
Company have been valued at $5.00 which is equal to the price per share
received by the Company on a private placement conducted in June 1999. As
a result, the total pro-forma purchase price is $3,750,000 and has been
allocated as follows:
F-79
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
$
- ----------------------------------------------------------------------------
Cash 18,935
Accounts receivable 5,447
Investment tax credit receivable 104,209
Capital assets 36,725
Completed technology 641,000
In-process research and development 220,000
Trademarks 243,000
Workforce-in-place 256,000
Goodwill 2,939,953
Accounts payable and accrued liabilities (112,084)
Notes payable (40,860)
Due to directors, officers and shareholders (133,295)
Long-term debt (333,690)
Due to the Company (95,340)
- -----------------------------------------------------------------------
3,750,000
- -----------------------------------------------------------------------
[e] The elimination of the $1,664 and $107 of interest revenue recorded in the
accounts of the Company for the three-month periods ended June 30, 1999
and March 31, 1999, respectively, in respect of the note payable from ACT
to the Company. ACT did not accrue the corresponding interest expense.
[f] The elimination of the $97,120 [Cdn.$142,611] amount payable from ACT to
the Company as of June 30, 1999, including interest of $1,780
[Cdn.$2,611]. ACT did not accrue the corresponding interest expense.
[g] The elimination of $290,596 [Cdn.$428,000] and $6,617 [Cdn.$10,000] of
consulting revenue from InfoCast recorded by ACT during the three-month
period ended June 30, 1999 and the three-month period ended February 28,
1999, respectively, and the elimination of $339,145 [Cdn.$498,000] of
research and development expenses recorded by InfoCast during the
three-month period ended June 30, 1999 in respect of payments made to ACT
of Cdn.$10,000 during February 1999, Cdn.$60,000 during March 1999 and
Cdn.$428,000 during the three-month period ended June 30, 1999.
[h] Under Canadian GAAP, development costs of companies in the development
stage may be capitalized if management expects the amounts to be recovered
through future revenues. Under US GAAP, development costs incurred prior
to the establishment of technological feasibility are expensed as
incurred. As a result, development costs incurred by ACT, net of
investment tax credits, of $168,756 during the year ended November 30,
1998, nil during the
F-80
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Expressed in United States dollars unless otherwise stated]
Prepared without audit or review
June 30, 1999
three-month period ended February 28, 1999 and nil during the three-month
period ended June 30, 1999 have been charged to income.
[i] The amortization of the $641,000 of completed technology, $243,000 of
trademarks, $256,000 of workforce-in-place and $2,939,953 of goodwill
created by the purchase of ACT by the Company, as described in [d] above,
over the three-month period ended June 30, 1999, the three-month period
ended March 31, 1999 and the year ended December 31, 1998 on a
straight-line basis utilizing amortization periods of five years in
respect of the completed technology, trademarks and goodwill and three
years in respect of the workforce-in-place. The amortization of the
$297,000 deferred income tax liability [created by the purchase of ACT by
the Company in respect of the difference between the tax and accounting
basis of the completed technology, trademarks and workforce-in-place] over
the periods of the underlying assets has been limited to nil because of an
offsetting deferred income tax debit created in respect of estimated tax
loss carryforwards.
[j] The write-off of the $220,000 of in-process research and development
created by the purchase of ACT by the Company as described in [d] above.
This adjustment is a non-recurring item and has therefore only been
reflected in the pro-forma consolidated balance sheet.
F-81
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
September 13, 1999
INFOCAST CORPORATION
By: /s/ A. Thomas Griffis
-------------------------
A. Thomas Griffis
Co-Chairman of the Board
By: /s/ Darcy Galvon
-------------------------
Darcy Galvon
Co-Chairman of the Board