SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10/A-2
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
(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 and all amounts are expressed in U. S. dollars. See "Glossary" at pages
62 to 64 for the definition of certain terms used in this Registration
Statement.
ITEM 1. BUSINESS.
General
InfoCast Corporation (the "Company") is a development stage company
that is in the process of developing the infrastructure to enable it to host
both Company-customized and third-party software applications that can be
accessed remotely by businesses and their employees. This infrastructure will
consist of: computer hardware purchased from third parties; software
applications; and communication connections over private and public networks,
including the Internet. The Company plans to provide its customers with access
to its infrastructure and hosted applications on a per use basis. Companies
providing such services have recently come to be known as application service
providers or "ASPs."
Traditionally, businesses have had to purchase their own computing
systems, including hardware and software, as well as hire, train and retain
highly skilled employees to operate and maintain these systems, all of which
require significant capital and ongoing operating expenditures. By outsourcing
these functions to an application service provider, an enterprise will be able
to:
o Reduce upfront and ongoing capital expenditures;
o Reduce its investment in information technology personnel;
o Access up-to-date, highly scalable, reliable and flexible
technology;
o Focus its resources on its core business by outsourcing a non-core
function; and
o Potentially shorten implementation time for new computer systems.
In order to host its customized and third-party software applications,
the Company plans to establish a network of strategically placed data centers,
which the Company refers to as information hubs or i-Hubs. The Company expects
each installation to be implemented on Sun Microsystems Inc. servers using Sun
Solaris, Netscape and Java-related technologies, which the Company believes will
provide a high level of reliability, scalability and performance. The Company
expects that these information hubs will deliver information to information
users, including businesses and their employees and customers worldwide, in
real-time, in any format - data, voice or animation, through satellite, cable or
private or public telecommunications networks, including the Internet. To date,
the Company has installed two information hubs located in Calgary and Toronto,
Canada and has an agreement with AT&T Canada Long Distance Services Company
("AT&T Canada") that allows the Company access to AT&T Canada's
telecommunications network to connect these information hubs to customers. The
Company expects its two information hubs to be commercially operational by
December 31, 1999
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and expects to expand these information hubs and/or install additional
information hubs across North America as needed.
The Company intends to host third-party software applications, as well
as the following Company-customized software applications that it is in the
process of developing:
o Virtual Call Center - This application will permit businesses to
service inbound and outbound customer calls at any time through a customer
service representative who can be located anywhere.
o Distance Learning - This application will permit corporate and
academic learners to access training on-line, from anywhere, at any time.
o Teleworking - This application will permit businesses to enable their
employees to work via computer from remote locations.
The Company is currently in the testing and demonstration phase of
development with respect to these Company-customized applications and currently
expects that all three applications will be commercially available by end of the
fiscal year ending March 31, 2000.
The Company is a development stage company. Since the inception of
Virtual Performance Systems Inc., the predecessor to the Company, in July 1997,
the Company has not sold any products or services on a commercial basis and has
had no revenues. The Company incurred losses of $96,161 for the period from July
29, 1997 (inception) to December 31, 1997, $423,872 for the year ended December
31, 1998, $3,083,921 for the three month period ended March 31, 1999 and
$16,613,840 for the six month period ended September 30, 1999, resulting in an
accumulated deficit of $20,217,794 at September 30, 1999. Losses are continuing
through the date of this Registration Statement and the Company anticipates that
losses will continue for the foreseeable future. In addition, the market for the
Company's expected services is highly competitive and subject to rapid
technological change. The Company expects to face significant competition in the
future. As a development stage company in a new and rapidly evolving market, the
Company faces risks and uncertainties relating to its ability to successfully
implement its business plan, which are described in more detail in the section
entitled "Risk Factors" below. The Company may not successfully address all of
these issues.
History of the Company
The Company was incorporated on December 23, 1997. Prior to 1999, the
Company's sole business was mining 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
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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. During the year
ended December 31, 1998, the Company issued 5,000,000 pre-split shares of Common
Stock to Sheridan Reserve Incorporated for the acquisition of two mining
interests and in April 1998 issued 1,000,000 pre-split units at a price of $0.50
per unit in a private placement financing pursuant to Rule 504 of Regulation D
of the Securities Act of 1933, as amended. Each unit consisted of one pre-split
share of Common Stock and one pre-split Common Stock purchase warrant with an
exercise price of $0.50 per share exercisable 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 to Sheridan Reserve Incorporated.
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.
On January 29, 1999, the Company consummated the acquisition of all of
the voting capital stock of Virtual Performance Systems, Inc., a Canadian
corporation, for 1,500,000 shares of InfoCast Canada Corporation, a wholly-owned
subsidiary of the Company ("InfoCast Canada"), which are exchangeable on a
one-for-one basis for shares of Common Stock of the Company. Virtual Performance
Systems, Inc. was a development stage company that was developing solutions to
permit businesses to service inbound and outbound customer calls at any time
through a customer service representative who can be located anywhere and to
permit corporate and academic learners to access training on-line, from
anywhere, at any time. The consolidated financial statements of the Company are
the continuing financial statements of Virtual Performance Systems, Inc.
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, the Company purchased from ITC Learning Corporation the
distribution rights for all current and future ITC Learning Corporation
education and training products in consideration for $975,000 in respect of the
first
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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 Thomson Kernaghan & Co. Limited, 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 formed a
new company, Call Center Learning Solutions On-Line, Inc., which is owned 50/50
by both parties. Call Center Learning Solutions Online, Inc. expects to
initially convert and market 11 browser-based interactive multimedia courses
over a 12-month period. Call Center Learning Solutions has developed 29
instructor-led courses that cover substantially all aspects of call center
operation. Their training programs have been delivered to over 5,000 businesses
worldwide. The agreement between Call Center Learning Solutions and the Company
provides for courseware conversion, hosting on the Company's information hub and
deployment of the courseware to the global market electronically.
On May 13, 1999, the Company acquired all of the outstanding common
shares of HomeBase Work Solutions Ltd. HomeBase Work Solutions, headquartered in
Calgary, Alberta, Canada, was developing a solution to permit businesses to
enable their employees to work from remote locations via computers. The purchase
price was satisfied by the issuance of 3,400,000 shares of InfoCast Canada which
are exchangeable on a one-for-one basis for shares of Common Stock of the
Company.
In June and October 1999, the Company issued warrants to purchase
25,000 and 12,500 shares of Common Stock at an exercise price of $7.00 and $8.75
per share, respectively, to the Poretz Group, an investor relations consulting
firm, in consideration for on-going investor relations consulting services,
including reviewing the Company's public releases, setting up meetings between
the Company and members of the investment banking community and developing the
Company's public image.
In June 1999, in return for consulting services in respect of the
development of the Company's virtual call center application and for the
InfoCast corporate name, the Company issued warrants to purchase an aggregate of
50,000 shares of Common Stock at an exercise price of $7.00 per share to each of
Tsun Chow, Armin Roeseler, Paul Prabhaker and John J. Malley.
In June 1999, the Company entered into a memorandum of understanding
with Willow CSN (Canada) Inc. to launch Canada's first commercial call center
with remotely located customer service representatives.
In June 1999, the Company entered into an agreement with ITC Learning
Corporation pursuant to which the Company will become ITC Learning Corporation's
exclusive distance learning technology distributor for the delivery of
educational material for the State of California for
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consideration of $2,000,000, which was paid in three installments in August,
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.
From July to October 1999, the Company issued 1,730,000 shares of
Common Stock in a private placement financing for an aggregate offering price of
$9,515,000 pursuant to Regulation S of the Securities Act of 1933, as amended.
The Company may issue up to an additional 650,000 shares of Common Stock for an
aggregate offering price of $3,575,000 pursuant to such offering.
In October 1999, the Company issued options to purchase 60,000 shares
of Common Stock at an exercise price of $8.25 per share to Howard Nichol, an
investor relations consultant, for services, including assisting the Company
with communications with and presentations to stock brokers, analysts and
private and institutional investors, providing access to financial media and
introducing the Company to potential acquisition or alliance opportunities.
In October 1999, the Company entered into a non-exclusive investment
banking and financial advisory services agreement with N.M. Rothschild & Sons
Canada Limited and N.M. Rothschild & Sons (Washington) L.L.C. (together
"Rothschild"). Pursuant to the agreement, Rothschild will provide financial
advisory services to the Company relating primarily to advice with respect to
possible acquisitions, mergers, business combinations, strategic alliances and
the raising of up to $50 to $75 million in an equity financing, and will
undertake other related tasks as specified from time to time by the Company's
senior management. In consideration for its services, Rothschild shall be
entitled to a monthly work fee of $50,000, payable monthly in arrears to
Rothschild by the Company. In the event a Transaction (as defined below) is
implemented during the term of Rothschild's engagement, or within a period of
one year after the termination of Rothschild's engagement under the agreement on
which Rothschild worked or with a party identified by Rothschild during the term
of the agreement, the Company will pay a further fee of 3% of the value of the
Transaction (the "Performance Fee") to Rothschild in recognition of Rothschild's
contribution to such Transaction. For the purposes of the agreement,
"Transaction" means any acquisition, merger, alliance or business combination
which involves the Company and which shall be valued for purposes of the
Performance Fee to include any debt incurred or assumed by the purchaser or
parties in the combination and any shares issued or to be issued as part of the
consideration for any possible transaction. In the event there is a private
placement or sale of securities of the Company during the term of the agreement
other than pursuant to a Transaction, Rothschild, as the agent for the offering,
will be paid a commission on the total value of the proceeds raised. Any
commission Rothschild will receive as an agent with respect to any such sale of
securities will be determined at the time of such transaction and will be
consistent with current industry norms. The agreement shall commence as of the
date Rothschild notifies the Company of its completion of satisfactory due
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diligence. Thereafter, either party may terminate the agreement at any time,
with or without cause, by giving the other party 15 days written notice.
Background
The ability to deliver information to anyone, anywhere and at any time,
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 Company believes that rapid growth of the Internet, electronic
commerce and corporate intranets is an indication 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 technological 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.
A business opportunity exists in the near term for the deployment of
technology that links different network infrastructures so that information can
be either: (i) accessed remotely in near real-time across dedicated networks; or
(ii) reduced with regard to the fidelity and resolution of its content and then
accessed through the Internet.
As a development stage application service provider, the Company's
focus is on developing the infrastructure to enable customers to access the best
software applications 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 Information Hubs
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In order to host its customized and third-party software applications,
the Company is developing a network of strategically placed data centers, which
the Company refers to as information hubs or i-Hubs. The Company expects each
installation to be implemented on Sun Microsystems servers using Sun Solaris,
Netscape and Java-related technologies, which the Company believes will provide
a high level of reliability, scalability and performance. To date, the Company
has completed the installation of two information hubs based on the following
server platforms:
Calgary, Canada:
o One Sun Microsystems Enterprise 10,000 server
o Five Sun Microsystems Netra T-1 servers
o Two Sun Microsystems Enterprise 250 servers
o Two Sun Microsystems 450 servers
Toronto, Canada:
o Four Compaq 450 servers
o Five Sun Microsystems Netra T-1 servers
The Company is in the process of testing and validating the equipment
and associated systems. The Company expects both information hubs to be
commercially operational by December 31, 1999 and expects to expand these
information hubs and/or install additional information hubs across North America
as needed. There can be no assurance that the Company will be able to complete
the development of its network of information hubs as scheduled or at all
because the Company may not be able to (i) raise the additional funds required
to complete such development, (ii) enter into agreements with appropriate
hardware and network providers, and (iii) attract and retain technologically
skilled employees.
In addition to the hosting servers, the Company anticipates that each
operational information hub will provide customers with the following:
o physical security;
o uninterruptable power supply with optional generator backup;
o disaster recovery plan; o guaranteed quality of service levels;
o help desk support;
o highly reliable Internet access; and
o network monitoring and supervision.
To execute the Company's information hub strategy, the Company is
currently negotiating to establish the following strategic relationships:
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Sun Microsystems, Inc. The Company is in the process of negotiating an
agreement with Sun Microsystems pursuant to which the Company would be
designated under Sun Microsystems' ServiceProvider.com(TM) program. Under such
agreement, the Company would not have any minimum financial commitments, but
would be entitled to purchase equipment from Sun Microsystems at a minimum
prescribed discount from Sun Microsystems' list prices. The Company believes
that there are approximately 12 companies participating in the
ServiceProvider.com(TM) program, all of which are located outside of Canada. The
program does not include any exclusivity arrangements. There can be no assurance
that any such agreement will be reached with Sun Microsystems. As a participant
in such program, the Company would have access to preferential pricing and
service treatment from Sun Microsystems, as well as:
o a recognized network and Internet computer alliance with worldwide
service and support;
o a stable operating system environment, further enabled by the
networking capability of Sun Microsystems' Java programming
language and environment;
o a clear and distinctive processing performance that meets the
challenges of network computing;
o solid communication tools and programs to support global network
connectivity;
o Internet firewall technology that provides support users with
seamless access; and
o professionals worldwide who can support complex network designs and
problems.
AT&T Canada The Company has entered into a non-binding letter of
understanding with AT&T Canada that provides that the parties will endeavor to
negotiate and execute the following agreements: (i) a development and supply
agreement whereby the Company would supply software learning products for
co-marketing with AT&T Canada; (ii) a telecommunications agreement whereby AT&T
Canada would provide the telecommunications services necessary to facilitate the
delivery of such products to customers and (iii) a cooperative marketing
agreement whereby the parties would work jointly to market and promote future
products and services. In addition, the Company is currently negotiating an
arrangement that would define how AT&T Canada and the Company will offer the
virtual call center application being developed by the Company to AT&T Canada's
customers. To date, the Company and AT&T Canada have entered into the
telecommunications agreement, which defines pricing levels. The Company does not
have any financial commitments pursuant to such agreement. The Company and AT&T
Canada will negotiate the remaining agreements once the Company's distance
learning application becomes commercially available, which the Company expects
will occur by March 31, 2000. No assurance can be given that any such other
agreements will be entered into. Such agreements with AT&T Canada would provide
the Company with:
o a relationship with a recognized global telecommunications
provider;
o connectivity between the Company's information hubs and the
information users;
o a marketing channel to access potential customers; and
o access to North American and international call center markets.
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The Company's Customized Software Applications
Virtual Call Center Application
The traditional method of providing customer support has been to
establish a call center whereby customer service representatives, located in a
central "brick and mortar" facility, respond to incoming client inquiries or
make outgoing calls via telephone banks. Typically, call centers are used for
help desk functions, telemarketing, catalog order taking and debt collection.
Traditional call centers are generally limited by the following:
o physical limitations with respect to the number of customer service
agents able to work based on the telephone lines and desks
available, which in turn limits the volume of calls that can be
handled;
o employee dissatisfaction and high turnover;
o high operational costs; and
o difficult to staff for cycles in call frequency.
The Company believes that outsourcing of call centers is gaining
popularity in North America and Europe and there is an emerging number of firms
offering call center outsourcing and management.
The virtual call center application that the Company is developing
would enable customer service representatives to be located anywhere, without
having to be present at a central "brick and mortar" facility, and would allow a
caller or customer to reach a trained customer service representative at any
time, from almost anywhere. The customer service representative would also be
able, if necessary, to have secure access to a merchant's in-house database.
Customer data would be protected by a dedicated (non-shared) network that uses
password access and firewalls to provide security, yet would be fully accessible
via a computer network or through a toll-free dial up service.
The Company's concept of a virtual call center is predicated on the
ability to provide the communication software that allows the customer service
representative, the buyer and the vendor to be linked together in real-time via
computers. The application that the Company is developing would enable a high
volume of inbound customer calls to be routed (without the caller knowing to
where the call is going) to a customer service representative, located anywhere,
who answers and services the call. The customer service representative would be
able to accept calls, immediately access the merchant's database, locate the
appropriate product/service and process the caller's request immediately. The
virtual call center application that the Company is developing is expected to
provide the necessary communications linkage and speed to allow all three
parties to interact in real-time.
The Company expects that, when completed, its virtual call center
application will provide the technology that: (i) converts a call from analog
(voice) to digital (information) so it can be
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transported over a data line; (ii) routes a call from the caller to the
appropriate customer service representative based on the needs of the caller and
skills and availability of the customer service representative (for example, a
caller may indicate his or her preference for a customer service representative
that speaks a certain language and if such a representative is available, the
call will be routed to such a representative); (iii) provides the customer
service representative with access to the business' database, including both
product and caller specific information; and (iv) converts the call back into
analog so the caller can communicate with the customer service representative,
all of which would take place in a secure, supervised environment. The Company
will use Voice Over-IP technology to convert calls from analog to digital and
back again. While the Company does not intend to develop the Voice Over-IP
software itself, it believes it can successfully select appropriate vendors and
implement such technology. The application that the Company is developing would
also support automated call distribution (routing) and interactive voice
response (choosing options by pressing touch tone numbers on a phone), as well
as forward-looking call center technologies such as unified messaging (combining
voice mail, e-mail and facsimile) and web-based help desks.
The essential elements of the virtual call center application that the
Company is developing include:
o skills-based routing, which routes calls to the appropriate
customer service representative based on predetermined parameters,
such as language;
o secure access to a business' database, including both customer
specific and product information;
o conversion of the call to and from digital and analog; and
o training and supervision of customer service representatives.
The virtual call center application that the Company is developing is
expected to result in the support of multiple customers with a single customer
service representative from any geographical location. This would result in: (i)
the customer service representative not being limited to a traditional
"brick-and-mortar" call center building and (ii) the application enabling a
single customer service representative to service multiple vendors and access
corporate data from each vendor, regardless of the firewall or virtual private
network solution (security measures) the vendor may have selected as its
corporate standard.
Virtual call centers would allow customer service representatives to
work from home, resulting in lower costs and greater employee satisfaction.
Using technology being developed by the Company, the Company expects that
virtual call centers will be able to provide all the features of a traditional
call center, while reducing capital and human resource overhead. Accordingly,
businesses would be able to service existing and new clients with better cost
structures, while both enhancing levels of service and reducing costly employee
turnover.
The Company is currently in the testing and demonstration phase of
development with respect to its virtual call center application and currently
expects that such application will be
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commercially available by end of the fiscal year ending March 31, 2000. There
can be no assurance that the Company will be able to complete the development of
its virtual call center application as scheduled or at all because the Company
may not be able to (i) raise the additional funds required to complete such
development and (ii) attract and retain technologically skilled employees. In
addition, there can be no assurance that a substantial market for the Company's
virtual call center application will develop and grow.
Distance Learning Application
Traditionally, in order for a business to provide training to its
employees, the business would bring an on-site instructor to the business'
offices and hold instructor-led classes. The drawbacks of holding such classes
include the difficulty and cost of assembling employees in a physical space and
the loss of productive work time. More recently, instructor-led training has
been augmented through the use of video conferencing, which has saved the
expense of physically assembling trainees, but still has many of the same
drawbacks as live on-site classes.
During the multimedia training boom of the early 1990's, CD-ROM became
the de-facto standard for content delivery. Businesses would purchase sufficient
software licenses to cover the number of employees to be trained. Each trainee
would then install a CD-ROM containing the course material on his or her
computer and commence the training on an individual basis. One problem with
CD-ROMs is that they do not permit the customization required by large,
technologically sophisticated and globally oriented companies. Additionally,
CD-ROM training does not provide the sense of community and shared learning
offered by the conventional classroom environment. While CD-ROMs increase
flexibility in terms of where and when employees can be trained, CD-ROMs do not
provide any interaction, monitoring or feedback, or the ability to customize
programs.
The factors driving people and businesses to seek training include:
o business requirements for staff to be certified in certain
technologies in order to assure performance and productivity;
o 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;
o the proliferation of computers and networks throughout all levels
of organizations, increasing the number of employees who need
training; and
o the continuous introduction and evolution of new technologies,
contributing to the need for continuing education.
The distance learning application that the Company is developing will
enable learners to access digital content through a standard browser interface.
Trainees will be able to interact with subject matter
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to enhance and support their learning endeavors. By having the tools to interact
with career and instructional experts, 24 hours a day, seven days a week,
through e-mail, chat rooms and other real-time collaborative tools across the
Internet or a dedicated network, the Company believes it will be able to offer a
higher level of service, compared to its potential competitors. The Company
believes that through the distance learning application it is developing, a
business will be able to train its employees with the best features of live
training courses without the associated drawbacks and at a much lower cost.
An important component of the distance learning application that the
Company is developing is the learning management system. The learning management
system consists of proprietary software developed by the Company that will
support multiple corporations and learning organizations that offer course
content on-line. The software was designed from the ground up with role-based
security (different users have access to different aspects of the network),
multiple language support and multi-enterprise billing and tracking facilities.
Acting as a "security blanket" around the content, the learning management
system will permit other organizations to embed their web-based training content
without fear of losing intellectual property over the Internet and still permit
that organization's employees to remotely access their training.
The distance learning application that the Company is developing would
provide access to:
o a group of subject matter experts (tutors) that give guidance to
learners in real time;
o a team that gives learners guidance with career development;
o a library of high quality courses in single units or as part of a
curriculum; and
o software tools to help busy faculty members develop or customize
courses rapidly.
The Company's distance learning application is expected to deliver
skills-based interactive multimedia content to corporate, academic and retail
learners. The Company expects the distance learning application to differentiate
itself from other training methodologies by delivering a complete learning
solution over any network, including the Internet. The Company expects that the
technology it is developing will provide content vendors with confidence that
their intellectual property will not be compromised and will allow self-paced
learning to maximize personal and career success of learners over their
lifetime. The Company expects the distance learning application to support the
learner with live on-line telephone coaching within a standard Internet browser
(i.e., Netscape Navigator or Internet Explorer) and enable the learner to access
a browser for interactive learning, producing a more collaborative learning
experience. In addition, the Company expects the application to enhance
conventional classroom-based and current distance learning delivery methods.
The Company expects that the software it is developing will support the
distance learning initiatives of third-parties, including the "AT&T Canada
Learning Partner Program(TM)". The objective of the AT&T Canada Learning Partner
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Program(TM) 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 expects that its technology will act as the enabling
technology for this initiative to permit distance education over any electronic
medium.
In addition, the Company expects that its relationship with AT&T Canada
will provide the Company will access to AT&T Canada's customer base to launch
its distance learning application, beginning in Canada. As a component of the
AT&T Canada Learning Partner Program(TM), the Company has entered into an
agreement with College Boreal of Sudbury (Ontario) Canada to provide academic
support and market course content for distribution using the Company's software
and infrastructure. Pursuant to the agreement, College Boreal is to provide
non-exclusive educational services to the Company and/or its clients and the
Company is to utilize such services in connection with the AT&T Canada Learning
Partner ProgramTM from December 10, 1998 to December 9, 2001, which term shall
be automatically renewed unless terminated by either party upon 90 days notice
at any time after December 9, 2001. Pricing, revenue, structure, financing,
schedule of payments and budgets for the specific products and services are to
be covered by a separate agreement to be negotiated by the parties. No assurance
can be given that such agreement will be entered into. College Boreal,
headquartered in Sudbury, Ontario, has seven campuses in Northern Ontario, each
connected to the largest telecommunications network among academic institutions
in Canada, which currently services the needs of the francophone community in
Northern Ontario. This program would provide access to interactive learning
anywhere, anytime for both corporate and academic studies and blend electronic
learning and on-line support utilizing browser- enabled applications being
developed by the Company and distributed over AT&T Canada's advanced fiber optic
and digital microwave network.
The Company has also entered into agreements with ITC Learning
Corporation pursuant to which the Company purchased from ITC Learning
Corporation the distribution rights for all current and future ITC Learning
Corporation education and training products and will become ITC Learning
Corporation's exclusive distance learning technology distributor for the
delivery of educational material for the State of California. 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, the Company
purchased from ITC Learning Corporation the distribution rights for all current
and future ITC Learning Corporation 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. In June 1999, the Company entered into an agreement with ITC Learning
Corporation pursuant to which the Company will become ITC Learning Corporation's
exclusive distance learning technology distributor for the delivery of
educational material for the State of California for consideration of
$2,000,000, which was paid in three installments in August, September and
October 1999. In addition, the Company and Call Center Learning Solutions formed
a new company, Call Center Learning Solutions On-Line, Inc., which is owned
50/50 by both parties. Call Center Learning Solutions Online, Inc. expects to
initially convert and market 11 browser-based interactive
-14-
multimedia courses over a 12-month period. Call Center Learning Solutions has
developed 29 instructor-led courses that cover substantially all aspects of call
center operation. The agreement between Call Center Learning Solutions and the
Company provides for courseware conversion, hosting on the Company's information
hub and deployment of the courseware to the global market electronically.
The Company is currently in the testing and demonstration phase of
development with respect to its distance learning application and currently
expects that such application will be commercially available by end of the
fiscal year ending March 31, 2000. There can be no assurance that the Company
will be able to complete the development of its distance learning application as
scheduled or at all because the Company may not be able to (i) raise the
additional funds required to complete such development, (ii) enter into
agreements with appropriate content and network providers and (iii) attract and
retain technologically skilled employees. In addition, there can be no assurance
that a substantial market for the Company's distance learning application will
develop and grow.
Teleworking Application
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 is developing the software and network infrastructure to connect
individuals working from their homes with their corporate offices. The Company
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 expects that the teleworking
application it is developing will provide:
o the ability to connect telecommuters with their offices over
high-speed, secure data and voice networks;
o psychological profiling conducted through a 70-item questionnaire
to assess an individual's ability to work well from home, which
questionnaire will be compared to a database of similar information
on successful teleworkers;
o a single source solution that supplies the hardware, software,
furniture and telecommuting training to enhance an employee's
ability to work from home; and
o ongoing monitoring and mentoring, evaluation, coaching and training
certification.
The Company plans to enter into agreements with third parties to
provide hardware and furniture as part of its product offerings. The Company
expects to offer a customized bundled solution that will provide all the
components, including "best of breed" software from third-party suppliers, to
implement a successful telework program.
The Company is currently in the testing and demonstration phase of
development with respect to its teleworking application and currently expects
that such application will be
-15-
commercially available by end of the fiscal year ending March 31, 2000. There
can be no assurance that the Company will be able to complete the development of
its teleworking application as scheduled or at all because the Company may not
be able to (i) raise the additional funds required to complete such development
and (ii) attract and retain technologically skilled employees. In addition,
there can be no assurance that a substantial market for the Company's
teleworking application will develop and grow.
Hosting Third-party Software Applications
In addition to its customized applications, the Company intends to host
third-party applications. The Company expects that its information hubs will
permit businesses to outsource certain components of their computing systems,
including e-mail messaging, remote backup of databases, software development and
testing platform. By outsourcing these components, businesses would not have to
own or manage their own complex computer systems. This would also provide
businesses access to up-to-date, highly scalable, reliable and flexible
technology that they might otherwise not be able to afford due to the high
capital costs involved and the necessity of hiring, training and retaining
experienced computer personnel. The Company believes that businesses will employ
selective information technology outsourcing to increase competitiveness or gain
access to new resources and skills.
The Company expects to host third-party applications and convert them
to support e-commerce. For example, the Company is in the process of converting
the conventional client-server architecture of Applied Terravision Systems Inc.,
an oil and gas financial software vendor, so that it can be hosted on a Company
information hub. Applied Terravision Systems' customers will then be able to
access these software applications from their offices using a standard web
browser. The Company is in the process of negotiating similar third-party
application hosting arrangements. However, there can be no assurance that the
Company will enter into any such agreements.
The Company is currently in the testing and demonstration phase of
development with respect to its hosting of third-party applications and
currently expects that it will host its first third-party application
commercially by December 31, 1999. There can be no assurance that the Company
will be able to host third-party applications as scheduled or at all because the
Company may not be able to (i) complete the development of its infrastructure or
(ii) successfully convert its customers' client/server architecture so that it
can be hosed on the Company's information hubs. In addition, there can be no
assurance that a substantial market for the hosing of third-party applications
will develop and grow.
-16-
Marketing and Sales Strategy
The Company's marketing strategy will be to bundle its services with
the existing products and services of companies such as AT&T Canada, with whom
the Company has an agreement; Sun Microsystems, Inc. under the
ServiceProvider.com(TM) program; and companies whose third-party applications
the Company will host. The Company believes that the existing customer
relationships will provide the Company with a sales advantage. The Company will
employ a small direct sales force of approximately 12 salespeople with both
selling and technical expertise, to support the initiatives of these companies
as well as to focus on a limited number of targeted customers/niche markets. In
addition, the Company plans to market its services through attendance at
tradeshows, advertising and articles in industry periodicals, referrals from
customers and its website. To date, the Company has had no sales.
A major component of the Company's marketing and sales strategy is the
pricing structure for the Company's services which will be offered to customers
on a per-use basis, which will allow customers the ability to pay only for what
they use, thus converting a fixed cost into a variable one. The Company believes
that this flexible pricing strategy will be very attractive to potential
customers.
Competition
The market for the Company's products and services is highly
competitive and subject to rapid technological change There are many companies
that act as application service providers, offering third-party application
hosting to their customers, including U.S. Internetworking Inc., FutureLink
Corp. and Corio Inc. Management does not know of any other company currently
offering the virtual call center, distance learning and telework applications
that the Company is developing. With respect to the distance learning
application that the Company is developing, competition currently consists of
many companies offering learning via CD-ROM and the Internet, including
SmartForce, DigitalThink, Inc. and click2learn.com, inc. With respect to the
virtual call center application being developed by the Company, competition
currently consists of the many traditional "brick and mortar" call centers,
including Convergis Corp. and APAC Customer Services Inc. With respect to the
telework application being developed by the Company, competition currently
consists of those technology companies that offer remote access to a company's
central computer system, including TManage Inc. and Rhythms Net Connections. The
Company believes that its ability to compete depends on many factors both within
and beyond its control, including the success of the marketing and sales efforts
of the Company and its competitors, the price and reliability of products and
services developed by the Company and its competitors and the timing and market
acceptance of the products and services being developed by the Company and its
competitors. 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
-17-
the Company will be able to compete successfully. See "Risk Factors -
Competition" for a description of the risks of the Company's competition.
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 such as the software developed by the Company that comprises the
learning management system, a filtering engine, a corporate hosted e-mail
service that integrates the Company's filtering engine with industry standard
e-mail and directory servers from Netscape and Sun Microsystems, a methodology
that allows the Company to rapidly host applications from independent software
vendors on the Company's information hub, and various software integration
tools. The Company relies on a combination of nondisclosure agreements,
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 has entered into confidentiality agreements with most of its employees,
and anticipates that any future employees will also enter into such agreements.
The Company also 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 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 been a party to any such litigation to date. However, Applied
Courseware Technology Inc. ("ACT") has indicated that the Company has access to
and possesses intellectual property belonging to ACT and that the Company has no
right to use or derive any benefit from such intellectual
-18-
property. See "Risk Factors - Possible Litigation" and Item 8 - Legal
Proceedings. 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.
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.
-19-
Employees
At September 30, 1999, the Company had 35 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.
-20-
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
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. As a development stage company in a new and rapidly evolving market,
the Company faces risks and uncertainties relating to its ability to
successfully implement its business plan, which are described in more detail
below. The Company may not successfully address these risks. Since inception,
the Company has generated no revenues and has incurred losses of $96,161 for the
period from July 29, 1997 (inception) to December 31, 1997, $423,872 for the
year ended December 31, 1998, $3,083,921 for the three month period ended March
31, 1999 and $16,613,840 for the six month period ended September 30, 1999,
resulting in an accumulated deficit of $20,217,794 at September 30, 1999. 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 at least 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 will need additional
financing to meet its current plans for expansion. The Company expects to need
additional financing of at least $15 million over the next 12 months to fund its
full development plans. Such financing may be debt or equity financing. 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 additional financing, its ability to meet its current plans for
development and expansion could be materially adversely affected.
-21-
Environmental Liabilities. Prior to 1999, the Company's sole business
was mining exploration and development. The Company owned 100% of Madison Mining
Corporation ("Madison") and 94% of Gold King Mines Corporation ("Gold King").
Madison controlled 1,500 acres in the Adler Gulch mining district in Montana,
owned mining and milling equipment and certain patented and unpatented mineral
claims. The Madison property contained several past producing mines, including
the Cornucopia, El Fleeda, U.S. Grant, Bamboo Chief, St. Lawrence and Silver
Bell. Gold King owned 82% of three properties including the Gold King Mines and
the Minnehaha Mine in the mining district near Silverton, Colorado. The Gold
King properties included a lease of 212 acres of patented mineral claims,
ownership of 11 unpatented mineral claims covering 29 acres and ownership of 219
acres of fee land. In November 1998, the electorate of the State of Montana
approved an initiative to ban cyanide leach processing in that State for all new
open pit gold and silver mines and to prohibit expansion of existing mines using
cyanide leaching. In the Company's opinion, these initiatives seriously affected
the future planned operations of the Company. In late 1998, the Company sold its
mining-related assets.
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 is not aware of any environmental liabilities faced by the Company
and its prior management. However, 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.
Possible Litigation. The Company and Applied Courseware Technology Inc.
("ACT") signed a share purchase agreement dated May 13, 1999 whereby the Company
was to purchase all of the outstanding shares of ACT. As a result of the failure
of ACT to satisfy its representations and warranties under the share purchase
agreement and the lapse of the escrow agreement dated May 10, 1999 (as amended
by the extension agreement dated June 29, 1999), the share purchase agreement
was not consummated or completed. ACT has indicated to the Company that ACT
believes the Company unlawfully terminated the share purchase agreement and has
access to and possesses intellectual property belonging to ACT and that the
Company has no right to use or derive any benefit from such intellectual
property. ACT has indicated that it expects to commence an action against the
Company for damages. Whether or not determined in favor of the Company, any
litigation with ACT could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks. An unfavorable decision in any litigation with ACT could have
a material adverse effect on the business, financial condition and results of
operations of the Company. See "Item 8 - Legal Proceedings."
-22-
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 expects to hire an
additional 25 employees and, based on customer demand, expand the capacity of
its information hub network by an additional 10 hubs over the next 12 months.
There can be no assurance that the Company will be able to hire and retain such
personnel and expand such capacity. If it is unable to do so, the Company's
growth strategy may be materially adversely affected. 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, availability of funding on
commercially reasonable terms, 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.
Failure to Enter into Agreements with AT&T Canada, Sun Microsystems and
College Boreal. The Company is in the process of negotiating certain agreements
with AT&T Canada, Sun Microsystems and College Boreal. The Company's business
plans are predicated on the benefits the Company expects to receive as a result
of such agreements, as well as additional agreements it may enter into with
other network and courseware providers. There can be no assurance that the
Company will enter into any such agreements. If the Company does not enter into
such agreements, the Company may have to delay its plans until such time as it
enters into comparable agreements with other entities.
Competition. The market for the Company's products and services is
highly competitive and subject to rapid technological change. There are many
companies that act as application service providers, offering third-party
application hosting to their customers. Management does not know of any other
company currently offering the virtual call center, distance learning and
telework applications being developed by the Company. With respect to the
distance learning application being developed by the Company, competition
currently consists of many companies offering learning via CD-ROM and the
Internet. With respect to the virtual call center application being developed by
the Company, competition currently consists of the many traditional "brick and
mortar" call centers. With respect to the telework application being developed
by the Company, competition currently consists of those technology companies
that offer remote access to a company's central computer system. The Company
believes that its ability to compete depends on many factors both within and
beyond its control, including the success of the marketing and sales efforts of
the Company and its competitors, the price and reliability of products and
services
-23-
developed by the Company and its competitors and the timing and market
acceptance of the products and services being developed by the Company and its
competitors. 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 Qualified 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 such as the software developed by the Company that comprises the
learning management system, a filtering engine, a corporate hosted e-mail
service that integrates the Company's filtering engine with industry standard
e-mail and directory servers from Netscape and Sun Microsystems, a methodology
that allows the Company to rapidly host applications from independent software
vendors on the Company's information hub, and various software integration
tools. The Company relies on a combination of nondisclosure agreements,
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 has entered into confidentiality agreements with its employees and
anticipates that any future employees will enter into such agreements. The
Company also 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.
-24-
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 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 been a party to any such litigation to date. However,
Applied Courseware Technology Inc. ("ACT") has indicated that the Company has
access to and possesses intellectual property belonging to ACT and that the
Company has no right to use or derive any benefit from such intellectual
property. See "Risk Factors - Possible Litigation" and Item 8 - Legal
Proceedings. 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 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
-25-
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. Certain computer hardware and software is unable to
appropriately interpret the upcoming calendar Year 2000. These systems and
software refer to years in terms of their final two digits only and may
interpret the year 2000 as the year 1900 in error. Therefore, they will need to
be modified prior to the year 2000 in order to remain functional. The Company
has established a Year 2000 program that involves assessing the Company's key
hardware and software, assessing Year 2000 compliance by third parties with
which the Company has a material relationship, assessing Year 2000 compliance of
the applications being developed by the Company, and modifying and testing
hardware and software in the Company's internal systems, where necessary. The
majority of the Company's hardware and software has been acquired and/or
developed within the last twelve months and a Year 2000 assessment was done
prior to the acquisition or development.
The Company has completed an assessment of the hardware and software in
its core business information systems and has substantially completed the
necessary modifications. The Company has extended the assessment and remediation
process to the hardware and software in other information systems used in its
operations. The Company has also extended its assessment and
-26-
remediation to other areas of its business to include hardware and software not
supported by the Company's information systems department. The Company utilizes
third-party equipment, software and content, including non-information
technology systems and embedded micro-controllers that may not be Year 2000
compliant.
The Company has contacted key vendors and suppliers and other third
parties whose systems failures could potentially have a significant impact on
the Company's operations to determine the extent to which its systems may be
vulnerable and was referred to the Year 2000 section of their webpage.
The Company believes that the assessment and remediation phases of its
Year 2000 conversion program is substantially complete. The Company has not
incurred material costs to date for such program and does not anticipate that
the total cost of such program will have a material effect on its business,
results of operations or financial condition.
The most reasonably likely worst case scenarios regarding the Year 2000
issue would include a hardware failure, the corruption or loss of data contained
in the Company's internal information system, and a failure affecting the
Company's key vendors, suppliers or customers.
The Company has determined that it does not need a Year 2000
contingency plan at this time.
There can be no assurance that conversion of the Company's hardware and
software will be successful, that key third-parties will have successful
conversion programs, that the Company's systems do not contain undetected errors
or defects associated with Year 2000 date functions, or that other factors
relating to Year 2000 compliance, including but not limited to litigation, will
not have a material adverse effect on the Company's business, results of
operations or financial condition.
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 are outstanding. The Company has also issued options outside
such plans to purchase 810,000 shares of Common Stock at exercise prices ranging
from $7.00 to $8.25 per share and warrants to purchase an additional 307,500
shares of Common Stock at exercise prices ranging from $7.00 to $8.75 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
-27-
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.
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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, 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 six months ended September 30,
1999 and 1998 and for the three months ended March 31, 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 six months ended September 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 September 30, 1998
are those of Virtual Performance Systems. The historical results are not
necessarily indicative of the results of operations to be expected in the
future.
Selected Financial Data
Period from
July 29, 1997
Year ended (inception) to
Six months ended Three months ended December 31, December
September 30, March 31, 1998 31, 1997
------------- --------- ---- --------------
1999 1998 1999 1998
---- ---- ---- ----
Statement of
Operations Data:
Revenues.............. $ 58,464 $ 99 $ 4,478 $ 43,446 $ 43,446 $ 3,508
Expenses.............. 17,206,409 89,703 3,088,399 63,067 467,318 99,669
Net loss for the
period................ 16,613,840 89,604 3,083,921 19,621 423,872 96,161
Net loss per share.... $0.78 $0.11 $0.27 $478.56 $0.55 $2,345
Dividends paid........ - - - - - -
Balance Sheet Data:
Total assets.......... $33,201,093 $65,524 $4,025,076 $47,510 $143,467 $28,604
-29-
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 Virtual Performance Systems, Inc., a development stage
company and an Ontario corporation incorporated on July 29, 1997. Virtual
Performance Systems had a 100% interest in, and subsequently merged with,
Cheltenham Technologies Corporation ("Cheltenham Technologies"), an Ontario
corporation. Virtual Performance Systems has a 100% interest in Cheltenham
Interactive Corporation ("Cheltenham Interactive"), an inactive Ontario
corporation, and Cheltenham Technologies (Bermuda) Corporation ("Cheltenham
Bermuda"), a Barbados corporation that owns certain intellectual property. On
January 29, 1999, Virtual Performance Systems acquired the net assets of the
Company (formerly known as Grant Reserve Corporation), a United States
non-operating company traded on the Nasdaq OTC Bulletin Board, which had a 100%
interest in InfoCast Canada Corporation ("InfoCast Canada"). After the
acquisition, the accounting entity continued under the name of InfoCast
Corporation. InfoCast Corporation, InfoCast Canada, Virtual Performance Systems,
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.
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."
-30-
Overview
The Company is a development stage company that is in the process of
developing the infrastructure to enable it to host both Company-customized and
third-party software applications that can be accessed remotely by businesses
and their employees. This infrastructure will consist of: computer hardware
purchased from third parties; software applications; and communication
connections over private and public networks, including the Internet. The
Company plans to provide its customers with access to its infrastructure and
hosted applications on a per use basis. Companies providing such services have
recently come to be known as application service providers or "ASPs."
The Company has incurred operating losses since its inception in July
1997. The Company has not yet sold any products or services on a commercial
basis and has had no revenues. The Company has sustained itself through the sale
of its Common Stock and warrants to purchase Common Stock in a series of private
placements and shareholder loans. There can be no assurance that such funds will
be available in the future if additional capital is required.
The Company acquired HomeBase Work Solutions 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 Work Solutions acquisition provided
the Company with the core technology for its information hub strategy. The
acquisition also introduced the telework application and third-party application
hosting initiatives to the Company, both of which will be hosted on the
Company's information hub. The virtual call center application and distance
learning library being developed by the Company will also be hosted on the
information hub.
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
Six months ended September 30, 1999 vs. six months ended September 30, 1998
Consulting income decreased from $99 for the six months ended September
30, 1998 to zero for the six months ended September 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 six months ended September
30, 1998 to $58,464 for the six months ended September 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 six month
period ended September 30, 1999, consistent with the Company's investment policy
discussed under "Risk Factors - Foreign Exchange" elsewhere in this Registration
Statement.
-31-
General, administrative and selling expenses increased from $35,310 for
the six months ended September 30, 1998 to $4,023,321 for the six months ended
September 30, 1999. The consolidation of the operations of HomeBase Work
Solutions for the period May 13, 1999 to September 30, 1999 accounted for
$147,000 of the increase. The Company incurred expenses of $284,000 related to
the HomeBase Work Solutions acquisition in the form of incentive compensation
paid to three key officers of HomeBase Work Solutions. The Company had
approximately seven more employees involved in general, administrative and
selling functions in the six month period ended September 30, 1999 than for the
same period ended September 30, 1998, contributing approximately $111,000 to the
increase in expenses. The Company paid consulting fees to an additional three
consultants during the six month period ended September 30, 1999 compared to the
same period ended September 30, 1998, contributing approximately $400,000 to the
increase in general, administrative and selling expenses. Investor relations
costs of $687,000 were incurred for the six month period ended September 30,
1999, $607,700 of which was spent on national media consulting services and
financial community investor relations consulting services. Additional rent
expenses of $75,500 were incurred for the two U.S. offices that were not open in
September 1998 and the expanded Toronto office space. The Company expensed
$595,083 for warrants issued for services during the six month period ended
September 30, 1999 and expensed an additional $254,149 related to common stock
issued for services during the six month period ended September 31, 1999. The
Company incurred sales and marketing expenses related to the Call Center
Learning Solutions On-Line Inc. joint venture of $103,000 during the six month
period ended September 30, 1999.
Stock option compensation expense increased from zero for the six
months ended September 30, 1998 to $9,506,548 for the six months ended September
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.
-32-
Research and development expenses increased from $52,498 for the six
months ended September 30, 1998 to $1,783,346 for the six months ended September
30, 1999. This increase is primarily due to continued efforts to develop and
expand the Company's product offerings. The Company incurred expenses of
approximately $618,000 for services related to the electronic conversion of
courseware and the Call Center Learning Solutions On-Line joint venture up to
September 30, 1999. The Company also wrote off a $95,000 receivable from Applied
Courseware Technology in September 1999 to research and development expense. The
Company had approximately six more employees involved in research and
development functions in the six month period ended September 30, 1999 than for
the same period ended September 30, 1998, contributing approximately $129,000 to
the increase in expenses. The Company paid consulting fees to an additional six
consultants during the six month period ended September 30, 1999 compared to the
same period ended September 30, 1998, contributing approximately $178,000 to the
increase in research and development expense.
Amortization expenses increased from zero for the six months ended
September 30, 1998 to $1,863,286 for the six months ended September 30, 1999.
Amortization of the acquired intellectual property and goodwill resulting from
the acquisition of HomeBase Work Solutions accounted for the majority of the
increase in the amortization expense for the period.
Depreciation expenses increased from $1,895 for the six months ended
September 30, 1998 to $29,908 for the six months ended September 30, 1999. This
increase is a result of the acquisition of additional capital assets between
October 1, 1998 and September 30, 1999.
Deferred income taxes increased from zero for the six months ended
September 30, 1998 to $534,105 for the six months ended September 30, 1999 as a
result of the drawdown of the deferred income tax liability created by the
purchase of HomeBase Work Solutions 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.
-33-
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 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.
-34-
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 Work Solutions 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.
Liquidity and Capital Resources
Inception to September 30, 1999
At September 30, 1999, the Company had cash and cash equivalents of
$5,300,965 and working capital of $4,286,298. 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.
-35-
From its inception on July 29, 1997 to January 29, 1999, Virtual
Performance Systems issued 3,624,100 shares of Common Stock for cash proceeds of
Cdn $3,732 (or $2,540 in U.S. dollars as of September 30, 1999). Pursuant to the
reverse takeover transaction on January 29, 1999, the shareholders of Virtual
Performance Systems sold their 100% interest in Virtual Performance Systems 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 September 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 in March
1999 , 420,000 shares of Common Stock at $5.00 per share in a private placement
in June 1999 and 1,720,000 shares of Common Stock at $5.50 per share in a
private placement in July, August and September 1999. The Company has raised
$14,710,000 from these private placements, net of share issuance costs.
From its inception, the Company has used $6,104,000 for operating
activities before changes in non-cash working capital balances mainly as a
result of general , administrative and selling and research and development
expenditures, net of incidental revenues. The Company used a further $1,064,000
for the purchase of capital assets and software licenses, $2,975,000 on the
purchase of distribution rights and $324,000 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. In October 1999, the Company received $55,000 in
consideration for 10,000 shares of Common Stock, bringing the total gross
proceeds to $9,515,000 in consideration for 1,730,000 shares of Common Stock
under this current private placement. The Company may issue up to an additional
650,000 shares of Common Stock for an aggregate offering price of $3,575,000 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 telework and information hub products and
services and anticipates spending approximately $4,800,000 on
these efforts from October 1, 1999 to September 30, 2000. The
Company anticipates that it will begin earning revenue and
collecting cash from sales of the telework and information hub
products and services
-36-
in the third quarter of the current fiscal year which will help fund the cash
requirements of this division but there can be no assurance that it will do so.
o The Company will contribute approximately $540,000 from
October 1, 1999 to March 31, 2000 to fund the marketing, sales
and technical support efforts of the Call Center Learning
Solutions 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, Call Center
Learning Solutions 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 from October 1,
1999 to September 30, 2000 to enhance and complete the
development of its virtual call center application.
o The Company expects to use approximately $800,000 from October
1, 1999 to March 31, 2000 in the development and electronic
conversion of courseware for the distance learning
application.
o The Company will use the remaining capital resources to fund
possible complementary acquisitions, develop new technologies,
and other corporate and working capital needs.
At October 31, 1999, the Company had approximately $3,602,000 of cash
and cash equivalents on hand. The Company believes that this cash as well as the
additional proceeds of up to $3,575,000 expected to be received by the Company
from the completion of the current Regulation S financing by the end of December
1999 will be sufficient to support the Company's growth for approximately the
next seven months. Based on its current plans, which include receipt of the
foregoing proceeds, the Company anticipates that it will begin generating
revenue within the next six months. This revenue is expected to provide the
Company with additional cash resources to support the Company's development
until approximately September 2000. In the event the current Regulation S
financing is not concluded , the Company will curtail its development plans
commencing in January 2000 and reduce expense levels materially . In such event,
the Company believes that its current cash reserves will support limited
activities until November 2000. The Company will be required to seek additional
funds and there can be no assurance that any financing will be available on
terms acceptable to the Company or at all.
On a long term basis, the Company will need to raise additional funds
through private or public financings, strategic or other relationships. In
October 1999, the Company entered into an agreement with Rothschild pursuant to
which Rothschild is to assist the Company in raising up to
-37-
$50 to $75 million over the next six months. See "Item 1 - Business - History of
the Company." There can be no assurance that the Company will be able to raise
any additional funds.
Year 2000 Compliance
Certain computer hardware and software is unable to appropriately
interpret the upcoming calendar Year 2000. These systems and software refer to
years in terms of their final two digits only and may interpret the year 2000 as
the year 1900 in error. Therefore, they will need to be modified prior to the
year 2000 in order to remain functional. The Company has established a Year 2000
program that involves assessing the Company's key hardware and software,
assessing Year 2000 compliance by third parties with which the Company has a
material relationship, assessing Year 2000 compliance of the applications being
developed by the Company, and modifying and testing hardware and software in the
Company's internal systems, where necessary. The majority of the Company's
hardware and software has been acquired and/or developed within the last twelve
months and a Year 2000 assessment was done prior to the acquisition or
development.
The Company has completed an assessment of the hardware and software in
its core business information systems and has substantially completed the
necessary modifications. The Company has extended the assessment and remediation
process to the hardware and software in other information systems used in its
operations. The Company has also extended its assessment and remediation to
other areas of its business to include hardware and software not supported by
the Company's information systems department. The Company utilizes third-party
equipment, software and content, including non-information technology systems
and embedded micro-controllers that may not be Year 2000 compliant.
The Company has contacted key vendors and suppliers and other third
parties whose systems failures could potentially have a significant impact on
the Company's operations to determine the extent to which its systems may be
vulnerable and was referred to the Year 2000 section of their webpage.
The Company believes that the assessment and remediation phases of its
Year 2000 conversion program is substantially complete. The Company has not
incurred material costs to date for such program and does not anticipate that
the total cost of such program will have a material effect on its business,
results of operations or financial condition.
The most reasonably likely worst case scenarios regarding the Year 2000
issue would include a hardware failure, the corruption or loss of data contained
in the Company's internal information system, and a failure affecting the
Company's key vendors, suppliers or customers.
The Company has determined that there is no need for a Year 2000
contingency plan at this time.
-38-
There can be no assurance that conversion of the Company's hardware and
software will be successful, that key third parties will have successful
conversion programs, that the Company's systems do not contain undetected errors
or defects associated with Year 2000 date functions, or that other factors
relating to Year 2000 compliance, including but not limited to litigation, will
not have a material adverse effect on the Company's business, results of
operations or financial condition.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to immaterial levels of market risks with
respect to changes in foreign currency exchange rates and interest rates. Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as foreign currency exchange and interest rates. To the extent that
the Company consummates financings outside of Canada, it receives proceeds in
currency other than the Canadian dollar. Most of the Company's operating
expenses are incurred in Canadian dollars. Thus, the Company's results of
operations will tend to be adversely affected if there is a strong Canadian
dollar. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes, nor does it enter into
financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates.
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.
HomeBase Work Solutions has offices located in 6,400 square feet of leased
office space in Calgary, Canada. The Company's lease in Toronto, Ontario expires
in November 2000, its lease in Chicago, Illinois expires in March 2002 and the
HomeBase Work Solutions lease in Calgary expires in August 2005. 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.
-39-
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of September 30, 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 of Class(2)
------------------- ------------------ -----------
Darcy Galvon 617,000(3) 3.18%
A. Thomas Griffis 9,204,997(4) 32.85%
James Leech 9,250,000(5) 32.96%
Michael Sheehan 9,100,000(6) 32.60%
James Hines 9,100,000(7) 32.60%
Richard Shannon 310,993(8) 1.63%
George Shafran 9,100,000(9) 32.60%
Alexander Walsh 9,200,000(10) 32.84%
Jennifer Scoffield 25,000(11) *
Treetop Capital Inc. 9,000,000(12) 47.84%
c/o Griffis International
1 Richmond Street West,
Suite 901, Toronto,
Ontario M5H3W4
-40-
Don Jeffrey 9,925,749(13) 34.54%
Sheridan Reserve
Incorporated
181 University Avenue,
Suite 2110, Toronto,
Ontario M5H3M7 1,000,000 5.32%
All officers and 10,907,990 36.70%
directors as a group
(9 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 Virtual Performance Systems 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 Virtual Performance Systems 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) 9,000,000 shares held by Treetop Capital Inc. ("Treetop"), of
which Griffis International Limited is a shareholder. Mr. Griffis and
Griffis International Limited have no control over Treetop or power to
direct Treetop's voting or disposition of its interest in the
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Company other than with respect to 1,020,000 shares of which Griffis
International Limited is the beneficial owner. Thus, Mr. Griffis
disclaims beneficial ownership with respect to 7,980,000 of the shares
of the Company's Common Stock owned by Treetop. Treetop expects to
distribute in the near future the shares it holds in the Company on a
pro rata basis to Treetop's shareholders. Virtual Performance Systems
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) 9,000,000 shares held by Treetop of
which Mr. Leech is an option holder. Mr. Leech has no control over
Treetop or power to direct Treetop's voting or disposition of its
interest in the Company other than with respect to 300,000 shares of
which he is the beneficial owner. Thus, Mr. Leech disclaims beneficial
ownership with respect to 8,700,000 of the shares of the Company's
Common Stock owned by Treetop. Treetop expects to distribute in the
near future the shares it holds in the Company on a pro rata basis to
Treetop's shareholders.
(6) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Sheehan under the 1998 Stock Option Plan and (ii) 9,000,000
shares held by Treetop, of which Mr. Sheehan is a shareholder. Mr.
Sheehan has no control over Treetop or power to direct Treetop's voting
or disposition of its interest in the Company other than with respect
to 200,000 shares of which he is the beneficial owner. Thus, Mr.
Sheehan disclaims beneficial ownership with respect to 8,800,000 of the
shares of the Company's Common Stock owned by Treetop. 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) 9,000,000 shares
held by Treetop, of which Mr. Hines is a shareholder. Mr. Hines has no
control over Treetop or power to direct Treetop's voting or disposition
of its interest in the Company other than with respect to 630,000
shares of which he is the beneficial owner. Thus, Mr. Hines disclaims
beneficial ownership with respect to 8,370,000 of the shares of the
Company's Common Stock owned by Treetop. 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) Includes (i) 219,993 shares to be issued in exchange for outstanding
shares of InfoCast Canada and (ii) 90,000 shares issuable upon exercise
of options granted to Mr. Shannon under the 1999 Stock Option Plan.
(9) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Shafran under the 1998 Stock Option Plan and (ii) 9,000,000
shares held by Treetop, of which Mr.
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Shafran is a shareholder. Mr. Shafran has no control over Treetop or
power to direct Treetop's voting or disposition of its interest in the
Company other than with respect to 250,000 shares of which he is the
beneficial owner. Thus, Mr. Shafran disclaims beneficial ownership with
respect to 8,750,000 of the shares of the Company's Common Stock owned
by Treetop. 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) 200,000 shares issuable upon exercise of options granted
to Mr. Walsh under the 1999 Stock Option Plan and (ii) 9,000,000 shares
held by Treetop, of which Mr. Walsh is a shareholder. Mr. Walsh has no
control over Treetop or power to direct Treetop's voting or disposition
of its interest in the Company other than with respect to 300,000
shares of which he is the beneficial owner. Thus, Mr. Walsh disclaims
beneficial ownership with respect to 8,700,000 of the shares of the
Company's Common Stock owned by Treetop. 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 25,000 shares issuable upon exercise of options granted to
Ms. Scoffield under the 1999 Stock Option Plan.
(12) Represents shares to be distributed to its shareholders on a pro rata
basis in the near future.
(13) Represents (i) 825,749 shares to be issued in exchange for outstanding
exchangeable shares of Virtual Performance Systems by Mr. Jeffrey, (ii)
100,000 shares issuable upon exercise of options granted to Mr. Jeffrey
under the 1998 Stock Option Plan, and (iii) 9,000,000 shares held by
Treetop, of which Mr. Jeffrey or his wholly-owned company is a
shareholder. Mr. Jeffrey has no control over Treetop or power to direct
Treetop's voting or disposition of its interest in the Company other
than with respect to 1,479,000 shares of which he is the beneficial
owner. Thus, Mr. Jeffrey disclaims beneficial ownership with respect to
7,521,000 of the shares of the Company's Common Stock owned by Treetop
. Virtual Performance Systems 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 the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
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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
Richard Shannon 54 President of HomeBase Work Solutions Ltd.
Alexander "Sandy" Walsh 33 Chief Technology Officer
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. In 1986, Mr. Galvon founded Sun MicroSystems, Inc.'s Western Canada
office in Calgary, Alberta, where he was responsible for covering the
transportation, utilities, education, manufacturing, retail, entertainment and
software developers in Calgary and the entire province of Saskatchewan. 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 has entered into a licensing and distribution agreement. He is also
Chairman of the Board of HomeBase Work Solutions.
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. Since 1986,
Mr. Griffis has been the founder and sole owner of Griffis International
Limited, a management consulting and business development firm. Griffis
International Limited has focused its activities on the structuring, financing
and management of emerging companies, particularly in the natural resource and
high-tech sectors.
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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 at Kasten Chase Applied Research Limited, a
publicly-traded data networking and wireless technology company, 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, a publicly-traded wireless technology company, 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.), a software development company, most recently as Director,
Financial Projects. From August 1996 to January 1997, Ms. Scoffield was Manager
of Finance for Pet Valu Canada, Inc., a retail pet supply company. 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 the Company's virtual call
center division 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. At AT&T, Mr. Sheehan was responsible for managing the building of complex
telecommunication systems and networks and helped create strategic marketing
plans for introducing new AT&T services and products.
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 advertising companies.
Lasso is a marketing communications company aimed at developing e- commerce web
sites and concepts to support more advanced interaction between merchants and
buyers. From 1994 to 1996, Mr. Hines was Vice President of TransActive
Communications Inc., a company that marketed smart cards.
Mr. Shannon has been the President and Chief Executive Officer of
HomeBase Work Solutions Ltd. since March 1999. Since 1990, Mr. Shannon has been
a founding shareholder and managing director of Baycor Capital, Inc., a merchant
bank based in Calgary, Alberta, as well as a founding shareholder and director
of Nevada Bob's Canada Inc., a publicly-traded golf retailer with 85 company
stores and 200 franchised stores located in 10 countries.
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., a
data networking company where he led product conceptualization and architectural
design and worked with industry partners to integrate
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complementary technologies. From March 1994 to February 1998, Mr. Walsh was
Project Lead for Andyne Computing Limited, a data networking company of
Kingston, Ontario. Prior to joining Andyne Computing Limited, Mr. Walsh held
various positions in the software design field.
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 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.
William R. Wilson was the Company's Chief Executive Officer during the
year ended December 31, 1998. He received no compensation for his service as the
Company's Chief Executive Officer. Michael Sheehan was the Company's Chief
Executive Officer from January 12, 1999 to July 6, 1999. Mr. Sheehan earned
$18,750 from January 12, 1999 to March 31, 1999 for his service as Chief
Executive Officer. Mr. Leech became the Company's Chief Executive Officer on
September 4, 1999. See "Item 6 - Executive Compensation - Employment
Agreements." No executive officer received compensation of a least $100,000
during the year ended December 31, 1998. No stock options were granted to any
executive officer in 1998.
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 under the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified stock
options. Incentive stock options and nonqualified stock options 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.
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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 September 30, 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 September 30, 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 composed
of two or more non-management directors that are "non-employee directors" within
the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended, 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 Securities Exchange Act of 1934, as amended.
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
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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 (or $224,500 in U.S. dollars as of
September 30, 1999) per annum, a minimum bonus of Cdn $30,000 (or $20,400 in
U.S. dollars as of September 30, 1999) for the period ending March 31, 2000 and
a minimum bonus of Cdn $50,000 (or $34,000 in U.S. dollars as of September 30,
1999) 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.
The agreement also provides that if Mr. Leech is terminated other than
for "cause," 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," he shall be paid
the base salary under the agreement until the date of termination and receive a
pro rata payment for all bonuses (calculated as the greater of the bonus which
would be paid under the Company's bonus plan on the basis that targets were met
and 50% of Mr. Leech's base salary), as well as any benefits accrued until the
date of termination and any options issued to Mr. Leech will immediately vest.
"Cause" is defined as a wilful refusal on the part of Mr. Leech to perform the
services required of him under the agreement (including the wilful and
intentional withholding of services thereunder), any breach of Mr. Leech's
fiduciary duties to the Company likely to cause material harm to the Company,
fraud or any conviction for a felony or indictable offense or any crime
involving moral turpitude or any of theft or dishonesty relating to a matter
material to the Company, provided that a wilful refusal to perform the services
required
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under the agreement will constitute cause only if Mr. Leech fails to terminate
the relevant actions or cure the relevant failure to act and remedy any harm
therefrom within 10 business days after receipt of written notice of such
wrongful act, failure to act or harm from the Company. "Disability" is defined
as the eligibility of Mr. Leech for long term disability benefits under the
disability insurance provided by the Company.
In the event Mr. Leech is terminated within 24 months of a "change of
control" of the Company, 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. "Change
of control" is defined as (i) the direct or indirect sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of the
Company to any person or entity or group of persons or entities acting jointly
or in concert as a partnership or other group (a "Group of Persons"); (ii) the
merger, consolidation or other business combination of the Company with or into
another corporation with the effect that the shareholders of the Company
immediately following the merger, consolidation or other business combination,
hold 50% or less of the combined voting power of the then outstanding securities
of the surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors; (iii) the
replacement of a majority of the Board of Directors of the Company or of any
committee of the Board of Directors of the Company in any given year as compared
to the directors who constituted the Board of Directors of the Company or such
committee at the beginning of such year, and such replacement shall not have
been approved by the Board of Directors of the Company, as the case may be, as
constituted at the beginning of such year; (iv) a person or Group of Persons
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases, merger, consolidation or other business
combination, or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
securities of the Company representing 20% or more of the combined voting power
of the then outstanding securities of such corporation ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors; or (v) the voluntary liquidation, dissolution or
winding-up of the Company in connection with which a distribution is made to the
holders of the Company's common shares.
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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the six months ended September 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, in the amount
of Cdn $150,000 (or $102,045
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in U.S. dollars as of September 30, 1999) for financial and management
consulting services rendered. The Company will continue to pay a monthly
consulting fee of Cdn $15,000 (or $10,200 in U.S. dollars as of September 30,
1999) while services are being rendered.
During the six months ended September 30, 1999, the Company paid
consulting fees to Don Jeffrey, a shareholder beneficially owning greater than
5% of the outstanding shares of the Company, in the amount of Cdn $105,000 (or
$71,400 in U.S. dollars as of September 30, 1999) for consulting services
related to business development and advice on potential acquisitions, including
introducing the Company to HomeBase Work Solutions Ltd. and Applied Courseware
Technology and identifying potential customers.
During the six months ended September 30, 1999, the Company paid
consulting fees totaling $80,000 and accrued an additional $20,000 to George
Shafran, a director of the Company, for consulting services related to business
development and advice on potential acquisitions, including introducing the
Company to an acquisition candidate and attending numerous sales calls with
potential customers. The Company will continue to pay a monthly consulting fee
of $10,000 while services are being rendered.
During the six months ended September 30, 1999, the Company paid
incentive compensation fees to Darcy Galvon, its Co-Chairman of the Board, of
Cdn $140,000 (or $95,250 in U.S. dollars as of September 30, 1999) in connection
with the Company's acquisition of HomeBase Work Solutions.
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 Work Solutions and Facet
Petroleum Solutions Inc., HomeBase Work Solutions 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 Cdn $200,678 (or $136,500 in U.S. dollars as of
September 30, 1999). Facet Petroleum received 25,000 shares of Common Stock of
the Company in exchange for the 6,910 HomeBase Work Solutions shares as a result
of the acquisition of HomeBase Work Solutions by the Company on May 13, 1998.
ITEM 8. LEGAL PROCEEDINGS.
The Company and Applied Courseware Technology Inc. ("ACT") signed a
share purchase agreement dated May 13, 1999 whereby the Company was to purchase
all of the outstanding shares
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of ACT. As a result of the failure of ACT to satisfy its representations and
warranties under the share purchase agreement and the lapse of the escrow
agreement dated May 10, 1999 (as amended by the extension agreement dated June
29, 1999), the share purchase agreement was not consummated or completed. ACT
has indicated to the Company that ACT believes the Company unlawfully terminated
the share purchase agreement and has access to and possesses intellectual
property belonging to ACT and that the Company has no right to use or derive any
benefit from such intellectual property. ACT has indicated that it expects to
commence an action against the Company for damages. Whether or not determined in
favor of the Company, any litigation with ACT could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks. An unfavorable decision in any
litigation with ACT could have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Risk
Factors-Possible Litigation."
The Company is not currently involved in any other material legal
proceedings. From time to time, however, the Company may be subject to claims
and lawsuits arising in the normal course of business.
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
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High Low
---- ---
Second Quarter.................... $10.13 $4.50
Third Quarter..................... $13.00 $7.00
Fourth Quarter (through
November 22, 1999)............... $8.88 $5.56
On November 22, 1999, the last reported sale price of the Common Stock
on the OTC Bulletin Board was $7.06 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.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In 1998, the Company issued 5,000,000 (pre-split) shares of Common
Stock to Sheridan Reserve Incorporated for the acquisition of two mining
interests pursuant to an exemption under Section 4(2) of the Securities Act of
1933, as amended.
In April 1998, the Company consummated a private placement of 1,000,000
(pre-split) units at a price of $0.50 per unit to 20 accredited investors
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 (pre-split)
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 to Sheridan Reserve
Incorporated.
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.
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On January 29, 1999, the Company consummated the acquisition of Virtual
Performance Systems, Inc. for 1,500,000 shares of InfoCast Canada which are
exchangeable on a one-for-one basis for shares of Common Stock of the Company to
17 persons 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. Such options were issued to the Company's
directors, officers and consultants.
In March 1999, the Company consummated a private placement financing
pursuant to which it issued 2,767,334 shares of Common Stock to 25 non-U.S.
persons 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 to Paul Kalvin,
George and Angela Shafran, Tom Shafran, Robert L. Frome, Jeffrey and Renee
Spindler, Douglas W. Fitzgerald and Amy Ladd, Marc Schinderman, Gary L. Roberts,
Alan DeClerck and David Olson, all of whom were accredited investors 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 Thomson Kernaghan & Co. Limited, 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
Work Solutions for 3,400,000 shares of InfoCast Canada which are exchangeable on
a one-for-one basis for shares of Common Stock of the Company to 51 persons
pursuant to an exemption under Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder.
In June and October 1999, the Company issued warrants to purchase
25,000 and 12,500 shares of Common Stock at an exercise price of $7.00 and $8.75
per share, respectively, to the Poretz Group, an investor relations consulting
firm, in consideration for ongoing investor relations consulting services. The
Company may issue warrants to purchase an additional 62,500 shares of Common
Stock to such firm for similar services to rendered.
In June 1999, in return for consulting services in respect of the
development of the Company's virtual call center application and the InfoCast
corporate name, the Company issued warrants to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $7.00 per share to each of Tsun
Chow, Armin Roeseler, Paul Prabhaker and John J. Malley.
On June 1, 1999, the Company issued options to purchase 1,180,500
shares of Common Stock to officers, employees, consultants and advisors under
the 1999 Stock Option Plan and options to purchase 750,000 shares of Common
Stock to James Leech, its President, Chief Executive Officer and a director of
the Company.
-53-
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
to Canadian Advantage LT Partnership for an aggregate offering price of
$2,100,000 pursuant to Regulation D of the Securities Act of 1933, as amended.
From July to October 1999, the Company issued 1,730,000 shares of
Common Stock in a private placement financing for an aggregate offering price of
$9,515,000 to 74 non-U.S. persons pursuant to Regulation S of the Securities Act
of 1933, as amended. The Company may issue up to an additional 650,000 shares of
Common Stock to non-U.S. persons for an aggregate offering price of $3,575,000
in such offering.
In October 1999, the Company issued options to purchase 60,000 shares
of Common Stock at an exercise price of $8.25 per share to Howard Nichol, an
investor relations consultant for services, including assisting the Company with
communications with and presentations to stock brokers, analysts and private and
institutional investors, providing access to financial media and introducing the
Company to potential acquisition or alliance opportunities.
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, as amended, and the Amended and Restated Bylaws
that are included as exhibits to this Registration Statement and by provisions
of applicable law. As of October 31, 1999, there were 18,905,943 shares of
Common Stock outstanding, options to purchase an additional 2,075,000 shares of
Common Stock at an exercise price of $1.00 per share outstanding , options and
warrants to purchase an additional 2,225,500 shares of Common Stock at an
exercise price of $7.00 per share, options to purchase an additional 60,000
shares of Common Stock at any exercise price of $8.25 per share and warrants to
purchase an additional 12,500 shares of Common Stock at an exercise price of
$8.75 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.
-54-
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Corporate
Stock Transfer in Denver, Colorado.
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.
-55-
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Ernst & Young LLP were appointed auditors of InfoCast Corporation on
February 8, 1999 and have audited the consolidated financial statements of
Virtual Performance Systems 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 Virtual Performance Systems sold their 100% interest in Virtual
Performance Systems 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 Virtual Performance
Systems 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 Virtual Performance Systems 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 Virtual Performance Systems (the accounting parent/legal subsidiary) and was
accounted for as a purchase of the net assets of InfoCast by Virtual Performance
Systems 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, Virtual Performance Systems. 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.
-56-
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 and
1998, the year ended December 31, 1998 and the period
from July 29, 1997 (inception) to December 31, 1997.
InfoCast Corporation Consolidated Financial Statements as of
and for the six months ended September 30, 1999 and
for the six months ended September 30, 1998
(unaudited).
HomeBase Work Solutions Ltd. Financial Statements as of and
for the three months ended March 31, 1999 and the
101-day period ended December 31, 1998.
InfoCast Corporation Pro-Forma Consolidated Financial
Statements as of and for the six months ended
September 30, 1999 , the three months ended March 31,
1999 and for the year ended December 31, 1998.
(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.
*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.
-57-
*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.
*4.13 Warrant to Purchase 12,500 shares of Common Stock dated
October 6, 1999 issued to the Poretz Group.
*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.
*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.
-58-
*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.
*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.
-59-
*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.
*10.30 Letter of Engagement dated October 21, 1999, by and among the
Company, N.M. Rothschild & Sons Canada Limited and N.M.
Rothschild & Sons (Washington) LLC.
*10.31 Letter of Understanding by and between the Company and AT&T
Canada Long Distance Services Company.
*10.32 Memorandum of Engagement dated December 10, 1998 by and
between the Company and College Boreal D'Arts Appliques et de
Technologie.
*10.33 Assignment of Contract and Assumption of Liability dated
October 19, 1999 by and between the Company and High
Performance Group, Inc.
*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.
*27.1.1 Financial Data Schedule.
27.1 Financial Data Schedule.
-60-
*27.2 Financial Data Schedule.
*27.3 Financial Data Schedule.
*27.4 Financial Data Schedule.
- ------------
* Previously filed.
-61-
Glossary
Application Service Provider (ASP): An application service provider is
a company that offers individuals or enterprises electronic access to
application programs and related services that would otherwise have to
be located in their own personal or enterprise computers.
Architecture: In the context of computers, servers and networks,
architecture is a term applied to both the process and the outcome of
thinking out and specifying the overall structure, logical components,
and the logical interrelationships of a computer, a server, their
operating systems, and a network.
Automated Call Distribution: Automated Call Distribution involves the
use of a telephone facility that manages incoming calls and handles
them based on the number called and an associated database of handling
instructions. Companies offering sales and service support use this
function to validate callers, make outgoing responses or calls, forward
calls to the right party, allow callers to record messages, gather
usage statistics, balance the use of phone lines, and provide other
services.
Browser: A program that allows a person to read hypertext. A browser
gives some means of viewing the contents of nodes (or "pages") and
navigating from one node to another. Netscape Navigator is an example
of a browser for the World Wide Web.
Call Center: A call center is a central place where customer and other
telephone calls are handled by an organization, usually with some
amount of computer automation. Typically, a call center has the ability
to handle a considerable volume of calls at the same time, to screen
calls and forward them to someone qualified to handle them, and to log
calls. Call centers tend to be used by large organizations that use the
telephone to sell or service products and services.
CD-ROM: CD-ROM technology is a format and system for recording,
storing, and retrieving electronic information on a compact disk that
is read using a laser optical drive.
Distance Learning: A type of education where students work on their own
at home or at the office and communicate with faculty and other
students via e-mail, electronic forums, videoconferencing and other
forms of computer-based communication.
Firewall: A firewall is a set of related programs, located on the
server functioning as an entry point into a network, that protects the
resources of that network from users from other networks.
-62
Information Technology (IT): Information Technology is an umbrella term
used to describe all forms of technology used to create, store,
exchange, and use information in its various forms
Interactive Voice Response: Interactive voice response "gives data a
voice." By using the touch tones on a telephone keypad, or in some
cases, the spoken voice, a caller can request, manipulate, and in some
cases modify data that resides on a "host" database somewhere. Typical
applications include: banking by phone, checking airline reservations
by phone, checking credit card balance by phone and registering for
college courses by phone. The technology is "interactive" because the
user is prompted for information by the system. For example, in a
banking by phone application, the system will ask a caller to enter its
account number from the telephone keypad. After the caller enters its
number, the system interacts with the caller further by giving the
caller additional options.
Interface: A boundary across which two systems communicate. An
interface might be a hardware connector used to link to other devices
or it might be a convention used to allow communication between two
software systems. Often there is some intermediate component between
the two systems that connects their interfaces together.
Java: Java is a programming language expressly designed for use on the
Internet. Java can be used to create complete applications that may run
on a single computer or be distributed among servers and clients in a
network. It can also be used to build small application modules, or
applets, for use as part of a web page. Applets make it possible for a
web page user to interact with the page.
Netra T-1 Server: A computer server developed by Sun Microsystems Inc.
which is designed for and aimed specifically at the needs of Internet
and application service providers.
Network: Any system designed to provide one or more access paths for
communications between users at different geographic locations.
Communications networks may be designed for voice, text, data,
facsimile image and/or video. They may feature limited access (private
networks) or open access (public networks) and will employ whatever
switching and transmission technologies are appropriate.
Operating System (OS): An operating system is the program that, after
being initially loaded onto the computer, manages all the other
programs in a computer. Examples of operating systems include DOS and
Windows.
Server: A server is a computer program that provides services to other
computer programs in the same or other computers. The computer that a
server program runs in is frequently referred to as a server (though it
may contain a number of server and client programs).
-63-
Sun Solaris: Sun Solaris is Sun Microsystems Inc.'s version of the UNIX
operating system, including networking software, a windows environment
and a graphical user interface.
Telework: Telework is the use of telecommunications technology to work
outside the traditional office or workplace, usually at home or while
traveling.
Unified Messaging: The communication application that combines e-mail,
voicemail and facsimile.
Virtual: The term virtual means the quality of effecting something
without actually being that something.
Virtual Private Network (VPN): A virtual private network is a private
data network that makes use of the public telecommunication
infrastructure, maintaining privacy through the use of various security
procedures such as data encryption.
Voice Over-IP (VoIP): Voice Over Internet Protocol is a term used for a
set of facilities and programs that manage the delivery of voice
information, such as telephone calls, over the Internet.
-64-
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
F-1
Consolidated Balance Sheet as of September 30, 1999 (unaudited)......................F-24
Consolidated Statements of Operations and Comprehensive Loss for
the six months ended September 30, 1999 and 1998 and for
the period from July 27, 1997(inception) to September 30, 1999 (unaudited)....F-25
Consolidated Statements of Cash Flow for the six months ended September 30, 1999
and 1998 and for the period from July 27, 1997 (inception) to
September 30,1999 (unaudited)........................................................F-26
Consolidated Statements of Changes in Stockholders' Equity as of March 31, 1999
and September 30, 1999 (unaudited)..............................................F-27
Notes to Consolidated Financial Statements............................................F-28
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
F-2
INFOCAST CORPORATION PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation.................................................................F-49
Pro-Forma Consolidated Statement of Operations for the six-month period
ended September 30, 1999 , the three-month period ended March 31, 1999
and the year ended December 31, 1998............................................F-50
Pro-Forma Adjustments.................................................................F-53
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
October 27, 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 [100,000,000 authorized and
18,172,333 issued and outstanding] [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 inactive Ontario corporation. Cheltenham Technologies has a
100% interest in Cheltenham Technologies (Bermuda) Corporation ["Cheltenham
Bermuda"], a Barbados corporation which owns certain intellectual properties. 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 fair 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 fair value.
Distribution rights
Acquired distribution rights are recorded at cost and represent rights to the
distribution of certain distance learning products. The capitalized costs of the
distribution rights will be amortized each period, commencing when
electronically converted products are available for license, at the greater of
i) the amount calculated based on the straight-line method over the estimated
useful life of 5 years or ii) the amount calculated based on the ratio of
current gross revenues received from the licensing of the electronically
converted products over the sum of the current and future gross revenues
anticipated to be received by licensing the electronically converted products.
[note 9[c]]. If it is determined that investment in distribution rights is not
recoverable from estimated sales, the distribution rights will be written down
to its fair 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
In preparing the Company's Canadian dollar functional currency financial
statements, United States dollar monetary assets and liabilities are remeasured
in the Company's Canadian dollar functional currency at the period end rate of
exchange. The statements are then translated into the Company's United States
dollar reporting currency. Transactions in foreign currency are remeasured at
the dollar 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.
The fair value of the intellectual property is $23 based on the fair value of
the 35 VPS shares issued in consideration thereof. The fair value per share in
respect of the 35 VPS common shares issued for the intellectual property is
consistent with the cash proceeds received per share in respect of the other 65
VPS common shares issued during 1997. The intellectual property purchased
pursuant to this agreement is completed technology and is related 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. The intellectual property purchased
pursuant to this agreement is completed technology and relates to remote banking
software. The Company purchased the intellectual property rights for
consideration as follows:
[i] $49,735 [Cdn.$75,000] if the Company becomes a public corporation and has
completed a minimum financing of $2,000,000; and
[ii] $215,000 [Cdn.$325,000] if the purchased remote banking software generates
revenue.
The Company has accrued the first $49,735 installment in its accounts as the
Company assessed the conditions requiring its payment to be probable when the
agreement was executed.
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
Acquired intellectual property consists of the following:
March 31, 1999 December 31, 1998
Net Net
Accumulated book Accumulated book
Cost amortization value Cost amortization value
$ $ $ $ $ $
Electronic information
delivery algorithms 23 - 23 23 - 23
Remote banking software 49,712 4,144 45,568 49,003 - 49,003
49,735 4,144 45,591 49,026 - 49,026
December 31, 1997
Net
Accumulated book
Cost amortization value
$ $ $
Electronic information
delivery algorithms 25 - 25
25 - 25
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
- ------------------------------------------------------------------------------------------------------------------------------------
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, including 375,000 options granted to consultants. 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.
The closing market price of the Company's common shares on the date of grant was
$6.625 per share. 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 attributable to the 375,000 stock options granted to
consultants was determined based on the fair value of the options at the date of
grant, $5.87 per option, and will be adjusted to the then current value at each
interim financial reporting date and will be amortized to income over the
vesting periods of the stock options. The deferred compensation in respect of
the 1,700,000 stock options granted to employees and directors will be amortized
to income over the remaining vesting periods of the options in accordance with
the intrinsic value method.
A summary of the Company's share option activity is as follows:
Three Months Ended
March 31, 1999
Number of Weighted Average
Options Exercise Price
# $
Outstanding as of January 1, 1999 - -
Granted 2,250,000 1.00
Exercised - -
Forfeited - -
Cancelled (175,000) 1.00
Outstanding as of March 31, 1999 2,075,000 1.00
Exercisable as of March 31, 1999 - -
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 fair value of the
stock options granted was $5.87 per option utilizing a Black-Scholes valuation
model. The Company assumed an expected dividend rate of 0%, a three year option
life, 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 $139,000 [Cdn. $210,000] to officers of Homebase and must pay an additional
$139,000 [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 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 has the
option to purchase from ITC perpetual distribution rights for certain distance
learning 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. The Company must make the final payent of
$500,000 by May 31, 1999 if the Company decides to continue with the agreement.
[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] $185,600 [Cdn.
$280,000] cash, [ii] 750,000 common shares of the Company, [iii] the assumption
of long-term debt of ACT of approximately $464,000 [Cdn. $700,000] which the
Company intends to renegotiate and [iv] the settlement by the Company of
approximately $232,000 [Cdn. $350,000] of additional ACT debt. The transaction
was subject to satisfactory due diligence.
Pursuant to subsequent negotiations, the $185,600 [Cdn. $280,000] cash component
of the purchase price was revised to nil. The amount and terms of ACT's debt
that was to be assumed by the Company upon its acquisition has not yet been
determined.
In September 1999, the Company decided not to proceed with the acquisition of
ACT.
During February and March 1999, the Company paid $92,794 [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 $46,398 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 uncertain as a
result of ACT's poor financial condition and the Company's decision to not
proceed with the purchase of ACT.
ACT has indicated to the Company that ACT believes the Company's decision to not
proceed with the acquisition is unlawful and that the Company has access to and
possesses intellectual property belonging to ACT that the Company has no right
to use or derive any benefit from. ACT has indicated that they expect to
commence an action against the Company for damages.
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.
[f] CosmoCom, Inc.
Pursuant to a summary of terms and conditions for a definitive agreement between
the Company and CosmoCom, Inc. dated April 1999, the Company intends to purchase
licenses for CosmoCom, Inc.'s CosmoCall software. Under this summary, the
Company placed an initial order for 300 licences for total consideration of
$754,500, payable in four installments during 1999.
10. INCOME TAXES
As of March 31, 1999, the Company has accumulated non-capital losses of
approximately Cdn.$1,000,000 [approximately $663,000] 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:
$
- --------------------------------------------------------------------------
2003 83,000
2004 414,000
2005 166,000
- --------------------------------------------------------------------------
663,000
- --------------------------------------------------------------------------
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 income.
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
September 30, 1999
ASSETS
Current
Cash and cash equivalents 5,300,965
Accounts receivable 142,093
Prepaid expenses and refundable deposits 325,042
- --------------------------------------------------------------------------------
Total current assets 5,768,100
- --------------------------------------------------------------------------------
Capital assets, net 2,181,598
Goodwill, net 5,397,009
Distribution and licensing rights, net [note 3(b)] 2,975,000
Intellectual property, net 16,753,736
Software license [note 3 (f)] 125,650
- --------------------------------------------------------------------------------
33,201,093
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY )
Current
Accounts payable and accrued liabilities 1,067,741
Current portion of obligations under capital leases 380,782
Due to directors, officers and stockholders 33,279
- --------------------------------------------------------------------------------
Total current liabilities 1,481,802
- --------------------------------------------------------------------------------
Obligation under capital lease 882,017
- --------------------------------------------------------------------------------
Deferred income taxes 6,351,895
- --------------------------------------------------------------------------------
Total liabilities 8,715,714
- --------------------------------------------------------------------------------
Stocholders' equity (deficiency)
Common stock (100,000,000 authorized
and 23,712,333 issued and outstanding) 22,212
Additional paid-in capital 48,921,081
Deferred compensation (5,151,232)
Warrants 848,550
Accumulated other comprehensive loss 62,562
Accumulated development stage deficit (20,217,794)
- --------------------------------------------------------------------------------
Total stockholders' equity (deficiency) 24,485,379
- --------------------------------------------------------------------------------
33,201,093
- --------------------------------------------------------------------------------
F-24
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
[U.S.dollars, U.S. GAAP ]
Unaudited
Six months Six months Cumulative from
ended ended inception to
September 30, 1999 September 30, 1998 September 30, 1999
- ---------------------------------------------------------------------------------------------------------
REVENUE
Consulting income - 99 46,954
Interest income 58,464 - 62,942
- -----------------------------------------------------------------------------------------------------
58,464 99 109,896
- -----------------------------------------------------------------------------------------------------
EXPENSES
General, administrative and selling 4,023,321 35,310 5,081,911
Stock option compensation 9,506,548 - 11,763,486
Research and development 1,783,346 52,498 2,085,697
Interest and loan fees - - 23,562
Amortization 1,863,286 - 1,867,430
Depreciation 29,908 1,895 39,709
- -----------------------------------------------------------------------------------------------------
17,206,409 89,703 20,861,795
- -----------------------------------------------------------------------------------------------------
Net loss before income taxes (17,147,945) (89,604) (20,751,899)
Deferred income taxes (534,105) - (534,105)
- -----------------------------------------------------------------------------------------------------
Net loss for the period (16,613,840) (89,604) (20,217,794)
Translation adjustment 48,253 12,204 62,562
- -----------------------------------------------------------------------------------------------------
Comprehensive loss for the period (16,565,587) (77,400) (20,155,232)
- -----------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 21,305,895 788,848 6,711,775
- -----------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.78) $ (0.11) $ (3.01)
- -----------------------------------------------------------------------------------------------------
F-25
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOW
[U.S.dollars, U.S. GAAP ]
Unaudited
Six months Six months Cumulative from
ended ended inception to
September 30, 1999 September 30, 1998 September 30, 1999
OPERATING ACTIVITIES
Net loss for the period (16,613,840) (89,604) (20,217,794)
Add (deduct) items not affecting cash
Stock option compensation 9,506,548 - 11,763,486
Common stock issued for services 254,149 - 264,329
Warrant issued for services 595,083 - 595,083
Write-off in-process research & development 19,000 - 19,000
Write-off ACT Loan 98,685 - 98,685
Deferred income taxes (534,105) - (534,105)
Amortization 1,863,286 - 1,867,430
Depreciation 29,908 1,833 39,709
- -------------------------------------------------------------------------------------------------------------------------------
(4,781,286) (87,771) (6,104,177)
Changes in non-cash working capital balances
Accounts receivable (64,181) 34,904 (83,597)
Prepaid expenses and refundable deposits (302,171) (231) (323,575)
Bank overdraft - (9,263) -
Accounts payable and accrued liabilities 630,861 23,312 921,276
Due from InfoCast [the acquired entity] prior to acquisition - - (25,020)
- -------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (4,516,777) (39,049) (5,615,093)
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES -
Purchase of capital assets (820,850) (2,184) (938,565)
Purchase of intellectual property - (48,979) -
Distribution rights (2,475,000) - (2,975,000)
Purchase of software license (125,650) - (125,650)
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. - - (139,299)
Acquisition of InfoCast Corporation - - 87
- -------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (3,370,833) (51,163) (4,227,289)
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entiry] - - 250,000
Increase (decrease) in due to directors, officers and shareholders (143,991) 76,830 (15,725)
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 Proceed from issuance of share capital , net 10,202,084 2,363 14,710,010
-
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 10,058,093 79,193 15,091,185
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period 2,170,483 (11,019) 5,248,803
Effects of foreign exchange rates change on cash balances 38,037 11,104 52,162
Cash & cash equivalents, beginning of period 3,092,445 - -
- -------------------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents, end of period 5,300,965 85 5,300,965
- -------------------------------------------------------------------------------------------------------------------------------
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 acquisition 3,400,000 3,400 16,996,600 -
of Homebase Work Solutions
Common shares issued for cash 2,140,000 2,140 11,557,860 -
Share issuance costs- cash - - (1,357,926) -
Share issuance costs- warrants - - (226,800) -
Warrants issued for consulting services - - - (76,002)
Adjustments resulting from revaluation of stock options - - 1,386,250 678,079
granted to consultants in previous periods
Adjustments resulting from revaluation of common shares - - 164,700 (6,777)
granted to consultants in previous periods
Adjustments resulting from revaluation of warrants - - - (95,750)
granted to consultants in previous periods
Granting of stock options - - 3,475,380 (3,475,380)
Amortization of deferred compensation - - - 7,683,530
Net loss for the period - - - -
Translation adjustment - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding as of September 30, 1999 23,712,333 22,212 48,921,081 (5,151,232)
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated
other Accumulated Total
Comprehensive development Stockholders'
Warrants loss stage deficit Equity
$ $ $ $
----------------------------------------------------------------------
Outstanding as of March 31, 1999 - 14,309 (3,603,954) 3,493,112
Deemed common shares issued for acquisition - - - 17,000,000
of Homebase Work Solutions - - - -
Common shares issued for cash - - - 11,560,000
Share issuance costs- cash - - - (1,357,926)
Share issuance costs- warrants 226,800 - - -
Warrants issued for consulting services 526,000 - - 449,998
Adjustments resulting from revaluation of stock options - - - 2,064,329
granted to consultants in previous periods - - - -
Adjustments resulting from revaluation of common shares - - - 157,923
granted to consultants in previous periods - - - -
Adjustments resulting from revaluation of warrants 95,750 - - -
granted to consultants in previous periods - - - -
Granting of stock options - - - -
Amortization of deferred compensation - - - 7,683,530
Net loss for the period - - (16,613,840) (16,613,840)
Translation adjustment - 48,253 - 48,253
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding as of September 30, 1999 848,550 62,562 (20,217,794) 24,485,379
- ------------------------------------------------------------------------------------------------------------------------------
F-27
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 inactive Ontario
corporation, and Cheltenham Technologies (Bermuda) Corporation ["Cheltenham
Bermuda"], a Barbados corporation which owns certain intellectual properties. 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
$141,561 [Cdn.$210,000] to officers of Homebase in May 1999 and an additional
$142,023 [Cdn.$210,000] in August 1999 to the officers of Homebase.
F-28
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 19,000
Trademarks 853,000
Workforce-in-place 253,000
Goodwill 5,846,293
Deferred income taxes (6,886,000)
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 identification and the fair
values of the completed technology, in-process research and development,
trademarks and workforce-in-place were determined by management with the
assistance of an independent valuator.
The completed technology is comprised of Homebase's information hub, telework
and web enabling technologies, together with the benefits of Homebase's
association with the National Environmental Policy Institute ("NEPI"). NEPI is a
United States based non-profit environmental lobbyist group that promotes
telework policies in the United States.
The results of operations of Homebase during the post-acquisition 141-day period
ended September 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
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 six-month period
ended September 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
Private placement at $5.50 per share 1,720,000 9,460,000
Share issuance costs -- (1,584,725)
- --------------------------------------------------------------------------------
Outstanding as of September 30, 1999 23,712,333 32,129,014
- --------------------------------------------------------------------------------
Exchangeable shares
The number of common shares outstanding as of September 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.
F-30
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 six-month
period ended September 30, 1999.
Private Placement Memorandum
During July, August and September 1999, pursuant to a Private Placement
Memorandum dated July 1, 1999, the Company completed the private placement of
1,720,000 common shares at $5.50 per share for gross proceeds of $9,460,000 less
an agent's fee of $945,879.
Stock options
As of September 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, including 375,000 options granted to consultants, 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. The closing market price of the Company's common shares on the date of
grant was $6.625 per share. Of the 2,075,000 stock options that were originally
valued at $11,788,250, the deferred compensation attributable to the 375,000
stock options that were granted to consultants was originally determined based
on the fair market value of the options on the date of grant, $5.87 per option,
and was revalued as of August 8, 1999 to the then current fair value of $9.06
per stock option [based on a revised volatility of 1.019 and the August 8, 1999
common share closing market price of $ 10.00]. This revaluation resulted in a
charge to stock option compensation expense of $2,876,640 during the six-month
period ended September 30, 1999. Stock compensation expense of $5,201,935 was
charged to income during the six-month period ended September 30, 1999 in
respect of the remaining 1,700,000 stock options granted to employees and
directors that are accounted for utilizing the intrinsic value method.
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 September 30, 1999 1,180,500 stock option were granted to various
employees, officers, 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 the
following vesting: 905,500 vested on June 1, 1999 and 275,000 will vest on
December 1, 1999. The closing market price of the Company's common shares on the
date of grant was $7.00 per share, while the fair value of the stock options
granted was $2.16 per option utilizing a Black-Scholes valuation model. Of the
1,180,500 stock options, 700,000 were granted to employees and 480,500 were
granted to consultants and advisors. The 480,500 outstanding stock options
granted to consultants and advisors have been valued at $1,252,380, of which
$1,072,880 has been recognized as a stock option compensation expense during the
six-month period ended September 30, 1999, and of which the balance of $179,500
has been recorded as deferred compensation in the 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 option granted to
consultants and advisors, and will be amortized to income over the vesting
periods of the stock options. The deferred compensation in respect of the
700,000 stock options granted to employees and directors was nil because the
exercise price of the options was equal to the market price of the common shares
on the date of grant.
F-31
On June 1, 1999, the directors of the Company approved the grant of 750,000
stock options outside of the 1999 Stock Option Plan to an individual who became
an officer of the Company on September 4, 1999. The stock options 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. These outstanding options have been valued at
$2,437,500 of which $355,093 has been recognized as a stock option compensation
expense during the six-month period ended September 30, 1999, and of which the
balance of $2,082,407 has been recorded as deferred compensation in
stockholders' equity. The measurement date in respect of these stock options was
September 4, 1999
A summary of the Company's stock option activity is as follows:
Six Months Ended
September 30, 1999
Number of Weighted Average
Options Exercise Price
# $
Outstanding at March 31, 1999 2,075,000 1.00
Granted 1,930,500 7.00
Exercised - -
Forfeited - -
Cancelled - -
Outstanding at September 30, 1999 4,005,500 3.89
Exercisable as of September 30, 1999 1,930,500 4.59
If the Company had been following FASB Statement No. 123 ["FASB 123"] in respect
of stock option granted to its employee and directors, the Company would have
recorded a higher stock option compensation expense for the six month period
ended September 30, 1999 of $1,623,948 which results in a pro-forma net loss of
$18,237,788 and a pro-forma basic and diluted loss per share of $0.86 in respect
of the six-month period ended September 30, 1999. The Company assumed an
expected dividend rate of 0%, an expected life of 0.75 years, a risk-free rate
of 5.08% and an expected volatility factor of 0.838 in respect of the valuation
of stock options granted under the 1998 Stock Option Plan in accordance with
FASB 123. The Company assumed an expected dividend rate of 0%, an expected life
of one year, a risk-free rate of 5.1% and an expected volatility factor of 0.744
in respect of the valuation of stock options granted under the 1999 Stock Option
Plan and stock options granted outside of 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 September 30, 1999 to $8.375 each which resulted in a charge to
general and administrative expense of $254,149 during the six-month period ended
September 30, 1999.
F-32
Other warrants
Pursuant to a letter agreement dated May 20, 1999 with an investor relations
company and subsequent negotiations in October 1999, the Company will pay a
total of $75,000 and issue 75,000 warrants in consideration for consulting
services over the period from June 1, 1999 to May 31, 2000. The payments will be
made and warrants issued for services, in advance, as follows: $25,000 and
25,000 warrants on June 1, 1999, $12,500 and 12,500 warrants on each of October
6 and December 1, 1999 and $25,000 and 25,000 warrants on March 1, 2000. Based
on a volatility factor of 0.963 and a risk-free interest rate of 5.10% , the
Company valued the 25,000 warrants issued on June 1, 1999 at $149,750 which is
the fair market value as of the August 31, 1999 measurement date. The 12,500
warrants issued on October 6, 1999 are in consideration for consulting services
for the period September 1, 1999 to November 30, 1999. Based on a volatility
factor of 0.905 and a risk-free interest rate of 5.10% , the Company valued
these 12,500 warrants at $40,000 which will be adjusted on the November 30, 1999
measurement date to their then fair market value. Each of the existing and
future warrants issued under this agreement will have an exercise price equal to
the market price on the date granted, is exercisable on or after June 1, 2000
and expires May 31, 2001. The Company charged $163,083 to general and
administrative expenses in respect of these warrants during the six-month period
ended September 30, 1999.
On June 1, 1999, the Company issued 200,000 warrant 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] Marketing agreement
Pursuant to an advertising services agreement dated July 14, 1999, the
Company will pay $14,173 [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.
[b] Acquired distribution and licensing rights
Pursuant to a license agreement dated June 29, 1999, between the Company
and ITC Learning Corporation ["ITC"], the Company will become, for an
unlimited term, ITC's exclusive distance learning technology partner for
the hosting and delivery of educational material utilizing the A-STAR
component within ITC's Workforce Initiative Program for total
consideration of $2,000,000. The consideration of $2,000,000 is payable in
three installments, the first two of which were paid prior to September
30, 1999 for a total of $1,500,000 while the final installment of $500,000
is due on October 10, 1999. The final installment has been provided for in
the accounts.
The Company also entered into a separate distribution agreement with ITC
in March 1999. This distribution agreement provided the Company with the
perpetual non-exclusive right to market, sell and electronically convert
all existing and future ITC products in consideration for $1,000,000 in
respect of electronic distribution to the first 150,000 licensed
purchasers. In the event that the Company effects distribution to more the
150,000 licensed purchasers, the Company and ITC will share the revenue
generated therefrom based on a revenue sharing formula. The total
consideration was subsequently reduced to $975,000 and was paid by the
Company in two installments in March and May 1999.
F-33
Acquired distribution and licensing rights are recorded at cost. The
capitalized costs of the distribution and licensing rights will be
amortized each period, commencing when the electronically converted
products and educational material are available for distribution and
license, at the greater of (i) the amount calculated based on the
straight-line method over the estimated useful life of 5 years or (ii) the
amount calculated based on the ratio of current gross revenues received
from the licensing of the electronically converted products and the
hosting and delivery of educational material over the sum of the current
and future gross revenues anticipated to be received by licensing the
electronically converted products and hosting and delivering the
educational material. If it is determined that investment in distribution
and licensing rights is not recoverable from estimated sales, the
distribution and licensing rights will be written down to their fair
value.
[c] 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 and
will fund the incorporation and organization of the new corporation. Under
the agreement, the Company agreed to fund all marketing and technical
support efforts of the new corporation for the initial six-month period.
Pursuant to subsequent renegotiations, the Company has agreed to extend
the funding of all marketing and technical support efforts on a month to
month basis beyond the original six-month period. These sales and
marketing costs, the incorporation and organization costs for the new
corporation and the costs to convert the first five courses into
electronic format will be recorded and expensed by the Company in the
period in which they occur. Once the first five courses have been
converted into an electronic format capable of electronic distribution,
the two parties will share all revenues and bear all costs on a 50/50
basis. When the courses are contributed to the joint venture they will be
accounted for at the transferor's basis of zero. As of September 30, 1999
the Company had funded approximately $103,000 of marketing expenses which
the Company charged to income.
[d] 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 $476,210 [Cdn.$700,000] at the time of signing.
The equipment was delivered on September 20, 1999 and under the terms of
the lease, 36 monthly lease payments of $40,272 [Cdn.$59,197] are to
commence on the 16th day following delivery of the equipment. The lease
has been accounted for as a capital lease.
[e] Innatrex Inc.
The Company entered into a letter of intent with Innatrex Inc. in August
1999 whereby the two parties will be evaluating the feasibility of call
center technology owned by Innatrex Inc. for readiness within the
application service provider market. The Company agreed to pay to Innatrex
a total of $204,090 [Cdn.$300,000] as follows: $34,015 [Cdn.$50,000] upon
signing of the letter of intent and $42,519 [Cdn.$62,500] on each of
August 31, September 30, October 31 and November 30, 1999. To date, the
Company has paid a total of $161,572 and expects to pay the remaining
$42,519 on November 30, 1999. The Company expects to receive the payments
back through future revenue generated by the Company through the licensing
of this call center technology to third parties or this prepaid amount
will be converted to equity in Innatrex Inc.
[f] CosmoCom, Inc.
Pursuant to a summary of terms and conditions for a definitive agreement
between the Company and CosmoCom, Inc. dated April 1999, the Company
intends to purchase licenses for CosmoCom Inc.'s CosmoCall software. Under
this summary, the Company placed an initial order for 300 licenses for
total consideration of $754,500, payable in four installments. The Company
has taken delivery of 50 licenses and is currently testing the software.
The Company paid license fees of $62,875 in April 1999 and $62,875 in
September 1999 related to the first 50 licenses. The Company expects to
pay the third installment of $314,375, in consideration for the remaining
250 licenses, once the testing is completed and the software is to the
Company's satisfaction, with the final installment of $314,375 payable
upon delivery of the remaining 250 licenses.
F-34
[g] Investment banking and financial advisory services agreement
In October 1999 the Company entered into a non-exclusive investment
banking and financial advisory services agreement with N.M. Rothschild &
Sons Canada Ltd and N.M. Rothschild & Sons (Washington) L.L.C. (together
"Rothschild") pursuant to which Rothschild's will provide financial
advisory services to the Company. In consideration for its services,
Rothschild is entitled to a monthly work fee of $50,000 payable monthly in
arrears by the Company. Either party may terminate this agreement at any
time, with or without cause, by giving the other party 15 days written
notice.
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 September 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 income.
F-35
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 was 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 been determined.
During the six-month period ended September 30, 1999, the Company made cash
advances to ACT totaling $542,014 [Cdn $ 801,797] to fund certain development
expenditures incurred on behalf of the Company. These advances in addition to
$47,320 [Cdn.$70,000] that was outstanding as of March 31, 1999 have been
charged to research and development expenses during the six-month period ended
September 30, 1999.
In September 1999 the Company made the decision not to proceed with the
acquisition of ACT.
As of September 30, 1999, $95,242 [1998 - nil], including interest receivable of
$3,443, was 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 uncertain as a result of ACT's poor financial
condition and the Company's decision not to proceed with the purchase of ACT.
This loan amount was written down to $nil in September 1999.
ACT has indicated to the Company that ACT believes the Company's decision to not
proceed with the acquisition is unlawful and that the Company has access to and
possesses intellectual property belonging to ACT that the Company has no right
to use or derive benefit from. ACT has indicated that they expect to commence an
action against the Company for damages.
5. SUBSEQUENT EVENT
Private placement
From October 1, 1999 to November 22, 1999, the Company completed the private
placement of 159,000 common shares at $5.50 per share for gross proceeds of
$874,500, less an agent's fee of $87,450.
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
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid during the period -- -- --
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 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
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
September 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 acquisition of
Homebase Work Solutions Ltd. ["Homebase"] as if the Company had acquired
Homebase as of January 1, 1998 for purposes of the pro-forma consolidated
statements of operations for the six-month period ended September 30, 1999, for
the three-month period ended March 31, 1999 [the transition period] and for the
year ended December 31, 1998. Homebase was acquired by the Company on May 13,
1999.
The pro-forma consolidated financial statements are not necessarily indicative
of the results that actually would have occurred had the Company acquired
Homebase on the date 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
and the audited financial statements of Homebase appearing elsewhere in this
registration statement.
The unaudited pro-forma statement of operations for the year ended December 31,
1998, the three-month period ended March 31, 1999 and the six-month period ended
September 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 after translation
of its statements of operations from Canadian dollars to United States dollars.
The audited and unaudited statements of operations of Homebase have been
prepared in accordance with Canadian GAAP.
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 acquisition of Homebase under the
purchase method of accounting is based on available financial information and
certain estimates and assumptions.
F-49
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
SEPTEMBER 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six-month period ended September 30, 1999
Homebase Work
Solutions Ltd.
[43-day period
InfoCast ended Pro-forma Pro-forma
Corporation May 13, 1999] adjustment consolidated
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Interest income 58,464 473 58,937
- ------------------------------------------------------------------------------------------------------------------------------------
58,464 473 58,937
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 4,023,321 68,130 4,091,451
Stock option
compensation 9,506,548 -- 9,506,548
Research and development 1,783,346 -- 1,783,346
Amortization and
depreciation 1,893,194 16,872 [c] 546,351 2,456,417
First preferred Series A
share interest accretion -- 7,518 [b] (7,518) --
First preferred Series A
share dividend expense -- 8,813 [b] (8,813) --
- ------------------------------------------------------------------------------------------------------------------------------------
17,206,409 101,333 530,020 17,837,762
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before
income taxes (17,147,945) (100,860) (530,020) (17,778,825)
Deferred income taxes (534,105) -- [c] (159,945) (694,050)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss
for the period (16,613,840) (100,860) (370,075) (17,084,775)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 21,305,895 3,400,000 24,705,895
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
loss per share (0.78) (0.03) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
F-50
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
SEPTEMBER 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the three-month period ended March 31, 1999
Homebase
InfoCast Work Pro-forma Pro-forma
Corporation Solutions Ltd. adjustment consolidated
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
Interest income 4,478 191 [a] (105) 4,564
- ------------------------------------------------------------------------------------------------------------------------------------
4,478 191 (105) 4,564
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 635,334 221,453 856,787
Stock option compensation 2,256,938 -- 2,256,938
Research and development 162,914 -- 162,914
Interest and loan fees 23,562 155 23,717
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 [c] 1,187,067 1,216,784
- ------------------------------------------------------------------------------------------------------------------------------------
3,088,399 274,812 1,153,929 4,517,140
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (3,083,921) (274,621) (1,154,034) (4,512,576)
Deferred income taxes -- -- [c] (347,500) (347,500)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (3,083,921) (274,621) (806,534) (4,165,076)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 11,583,995 3,400,000 14,983,995
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
- ------------------------------------------------------------------------------------------------------------------------------------
loss per share (0.27) (0.08) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
F-51
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
SEPTEMBER 30, 1999
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
Homebase
Work
Solutions Ltd.
[101-day
period
from inception
InfoCast to December 31, Pro-forma Pro-forma
Corporation 1998] adjustment consolidated
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
REVENUE
Other revenue 43,446 -- 43,446
Interest income -- 485 485
- ------------------------------------------------------------------------------------------------------------------------------
43,446 485 -- 43,931
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General, administrative
and selling 375,302 87,337 462,639
Research and
development 88,180 -- 88,180
Interest and loan fees -- 130 130
First preferred Series A
share interest accretion -- 7,875 [b] (7,875) --
Amortization and
depreciation 3,836 -- [c] 4,827,192 4,831,028
- ------------------------------------------------------------------------------------------------------------------------------
467,318 95,342 4,819,317 5,381,977
- ------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (423,872) (94,857) (4,819,317) (5,338,046)
Deferred income taxes -- -- [c] (1,390,000) (1,390,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (423,872) (94,857) (3,429,317) (3,948,046)
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 768,301 3,400,000 4,168,301
Basic and diluted
loss per share (0.55) (0.03) (0.95)
- ------------------------------------------------------------------------------------------------------------------------------
F-52
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
SEPTEMBER 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.
[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 $6,886,000 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.
F-53
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 2 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
December 6, 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