<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File Number 333-32934
_________________
LIFEF/X, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 84-1385529
(State of Incorporation) (I.R.S. Employer Identification No.)
153 NEEDHAM STREET, BUILDING ONE, NEWTON, MASSACHUSETTS 02464
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (617) 964-4200
_________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of May 1, 2000, there were 19,010,946 Common Shares of Lifef/x,
Inc. outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
LIFEF/X, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements.................................. 1
Item 2. Management's Discussion and
Analysis or Plan of Operation......................... 9
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings..................................... 13
Item 4. Submission of Matters to
a Vote of Security Holders............................ 13
Item 6. Exhibits and Reports on Form 8-K...................... 13
Signatures............................................ 14
</TABLE>
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1999 2000
---------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,778,040 15,430,917
Restricted cash from stock subscriptions 9,051,000 --
Other receivables 17,249 12,442
Prepaid expenses 175,000 134,891
------------- -----------
Total current assets 17,021,289 15,578,250
Property, plant and equipment -- 331,165
Other assets -- 246,250
Net assets of discontinued operation - long-term 4,451,701 --
------------- -----------
$ 21,472,990 16,155,665
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 864,123 1,032,178
Accounts payable to PTM Productions, Inc. -- 565,311
Net liabilities of discontinued operation - current 9,598,372 --
------------- -----------
Total current liabilities 10,462,495 1,597,489
Other long-term liabilities 357,250 322,699
------------- -----------
10,819,745 1,920,188
------------- -----------
Shareholders' equity:
Common stock, $.001 par value. Authorized 100,000,000
shares: issued and outstanding 19,010,946 shares (2000)
and 18,999,917 shares (1999) 18,992 19,011
Additional paid-in capital 52,635,250 57,071,258
Common stock subscribed (579,000) --
Deferred compensation related to stock options (2,272,148) (1,979,279)
Deficit accumulated during development stage (39,149,849) (40,875,513)
------------- -----------
Total shareholders' equity 10,653,245 14,235,477
------------- -----------
$ 21,472,990 16,155,665
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1999 2000
---------------- ----------------
(Unaudited)
Revenue $ -- --
---------------- ----------------
<S> <C> <C>
Operating costs and expenses:
General and administrative 53,919 1,242,970
Research and development 311,948 677,717
----------- -----------
Total operating costs and expenses 365,867 1,920,687
----------- -----------
Loss from operations (365,867) (1,920,687)
Interest expense - other 6,464 12,274
Interest expense - warrants issued in
connection with debt conversion 72 --
Interest income -- (209,353)
----------- -----------
Loss from continuing operations
before income tax expense (372,403) (1,723,608)
Income tax expense 800 2,056
----------- -----------
Loss from continuing operations (373,203) (1,725,664)
Discontinued operation:
Loss on discontinued operation (3,002,332) --
Loss on disposal (17,549,874) --
----------- -----------
Net loss $ (20,925,409) (1,725,664)
=========== ===========
Net loss per common share on a basic
and diluted basis:
Continuing operations $ (1.07) (0.09)
Discontinued operation (58.70) --
----------- -----------
$ (59.77) (0.09)
=========== ===========
Weighted average common shares outstanding 350,107 19,000,127
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Pacific Title / Mirage, Inc. Preferred Stock
---------------------------------------------------------------------
Series A Series B
--------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 8,000,000 $ -- 7,680,000 $ 7,996,799
Issuance of stock warrants -- -- -- --
Issuance of stock warrants -- -- -- --
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger (8,000,000) -- (7,680,000) (7,996,799)
Deferred compensation - stock options -- -- -- --
Vesting of stock options issued
as compensation -- -- -- --
Issuance of shares - private placement
offering -- -- -- --
Private placement offering costs -- -- -- --
Common stock subscribed -- -- -- --
Net loss -- -- -- --
--------------- --------------- --------------- ---------------
Balance at December 31, 1999 -- -- -- --
Exercise of stock options -- -- -- --
Completion of stock subscriptons -- -- -- --
Vesting of stock options issued
as compensation -- -- -- --
Increase in capital on transfer of
assets and liabilities to PTM
Productions, Inc. -- -- -- --
Net loss -- -- -- --
--------------- --------------- --------------- ---------------
Balance at March 31, 2000 -- $ -- -- $ --
=============== =============== =============== ===============
<CAPTION>
Pacific Title / Mirage, Inc. LifeF/X, Inc.
common stock common stock
-------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 320,100 $ 3,201 -- $ --
Issuance of stock warrants -- -- -- --
Issuance of stock warrants -- -- -- --
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger (320,100) (3,201) 12,960,750 12,601
Deferred compensation - stock options -- -- -- --
Vesting of stock options issued
as compensation -- -- -- --
Issuance of shares - private placement
offering -- -- 6,000,000 6,000
Private placement offering costs -- -- 39,167 391
Common stock subscribed -- -- -- --
Net loss -- -- -- --
-------------- --------------- --------------- ---------------
Balance at December 31, 1999 -- -- 18,999,917 18,992
Private placement offering costs -- -- -- --
Exercise of stock options -- -- 11,029 19
Completion of stock subscriptons -- -- --
Vesting of stock options issued
as compensation -- -- -- --
Increase in capital on transfer of
assets and liabilities to PTM
Productions, Inc. -- -- -- --
Net loss -- -- -- --
-------------- --------------- --------------- ---------------
Balance at March 31, 2000 -- $ -- 19,010,946 $ 19,011
============== =============== =============== ===============
<CAPTION>
Deferred
Common compensation Total
Additional stock related to Accumulated shareholders'
paid-in capital subscribed stock options deficit equity
--------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 6,000 -- -- (6,533,074) 1,472,926
Issuance of stock warrants 1,462,383 -- -- 1,462,383
Issuance of stock warrants 23,389,176 -- -- -- 23,389,176
Conversion of PTM Preferred and common
stock into LifeF/X common stock and
warrants upon Merger 7,987,399 -- -- -- --
Deferred compensation - stock options 2,928,689 -- (2,928,689) -- --
Vesting of stock options issued
as compensation 25,950 -- 656,541 -- 682,491
Issuance of shares - private placement
offering 17,994,000 -- -- -- 18,000,000
Private placement offering costs (1,158,347) -- -- -- (1,157,956)
Common stock subscribed -- (579,000) -- -- (579,000)
Net loss -- -- -- (32,616,775) (32,616,775)
-------------- --------------- --------------- --------------- -----------
Balance at December 31, 1999 52,635,250 (579,000) (2,272,148) (39,149,849) 10,653,245
Private placement offering costs (236,984) -- -- -- (236,984)
Exercise of stock options 9,981 -- -- -- 10,000
Completion of stock subscriptions -- 579,000 -- -- 579,000
Vesting of stock options issued
as compensation 958,144 -- 292,869 -- 1,251,013
Increase in capital on transfer of
assets and liabilities to PTM
Productions, Inc. 3,704,867 -- -- -- 3,704,867
Net loss for the period -- -- -- (1,725,664) (1,725,664)
-------------- --------------- --------------- --------------- -----------
Balance at March 31, 2000 57,071,258 -- (1,979,279) (40,875,513) 14,235,477
============== =============== =============== =============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,925,409) (1,725,664)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation expense -- 6,410
Loss on disposal 17,549,874 --
Noncash interest expense - warrants issued in
connection with loans 72 --
Noncash compensation expense - stock options -- 292,869
Changes in operating assets and liabilities:
Other receivables, prepaid expenses
and other assets -- (201,334)
Accounts payable, accrued expenses and
other long-term liabilities 22,503 698,815
------------- -------------
Net cash (used in) operating activities (3,352,960) (928,904)
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment -- (337,575)
------------- -------------
Net cash (used in) investing activities -- (337,575)
------------- -------------
Cash flows from financing activities:
Proceeds from note payable to related party 3,900,000 --
Proceeds from sale of stock through private placement
related to common stock subscribed -- 579,000
Restricted cash from stock subscriptions -- 9,051,000
Proceeds from exercise of stock options -- 10,000
Net cash (used in) financing activities -
discontinued operation (547,040) (720,644)
------------- -------------
Net cash provided by financing activities 3,352,960 8,919,356
------------- -------------
Net increase in cash and cash equivalents -- 7,652,877
Cash and cash equivalents at beginning of period -- 7,778,040
------------- -------------
Cash and cash equivalents at end of period $ -- 15,430,917
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, including discontinued operation $ 183,455 189,212
Income taxes -- 2,506
============= =============
Supplemental disclosure of noncash financing activities:
Transfer of assets and liabilities of discontinued
operation to PTM Productions, Inc., net $ -- 3,704,867
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LIFEF/X, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the three months ended March 31, 2000 and 1999
(Unaudited)
Basis of Presentation
The information furnished is unaudited but reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Results for interim periods are not
necessarily indicative of results to be expected for the entire year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Reference should
be made to the Notes to the Consolidated Financial Statements in the
1999 Form 10-KSB filed by Lifef/x, Inc. for a further discussion of
accounting policies and other significant matters.
(1) Summary of Significant Accounting Policies
(a) Organization and Description of Business
On December 14, 1999, Fin Sports U.S.A., Inc. (Fin Sports) completed
a transaction (the Merger), whereby Fin Sports acquired all of the
outstanding capital stock of Pacific Title/Mirage, Inc. (Pac
Title/Mirage) through the merger of a wholly owned subsidiary of Fin
Sports, with and into Pac Title/Mirage, with Pac Title/Mirage as the
surviving corporation. In connection with the Merger, Fin Sports
changed its name to Lifef/x, Inc. (LifeF/X or the Company) and Pac
Title/Mirage changed its name to Lifef/x Networks, Inc. For a
detailed discussion of this transaction, refer to note 2 -
Acquisition of Pacific Title/Mirage, Inc. by Fin Sports U.S.A., Inc.
LifeF/X, Inc. and its wholly-owned subsidiary, LifeF/X Networks, Inc.
have been engaged in the following operations: (1) the development of
LifeF/X technology, and (2) the non-LifeF/X operations, which provides
film title, credits, special effects, digital effects and related
services to the motion picture and television industry.
The Company is a development stage enterprise as defined in Statement
of Financial Accounting Standards (SFAS) No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to developing technology.
Planned principal operations have commenced, but have not produced
LifeF/X technology revenue to date.
The Company's inception was June 1, 1997 when development of LifeF/X
technology commenced, and the Company was formally incorporated on
September 11, 1997.
5
<PAGE>
The Company has incurred losses from its inception (June 1, 1997) to
date. During this period, Safeguard Scientifics, Inc. (Safeguard),
which owned approximately 49% of Pac Title/Mirage, loaned the Company
significant amounts to support the operations of the business and to
finance capital expenditures. In March 1999, Pac Title/Mirage's
Board of Directors decided to concentrate the Company's efforts on
LifeF/X development, with primary emphasis on Internet applications
and, initiated steps to dispose of the remaining non-LifeF/X
operations, intending to reduce cash outflows from the non-LifeF/X
operations and to reduce or eliminate Pac Title/Mirage's bank debt.
The LifeF/X technology development is continuing as the primary
business of LifeF/X. Therefore, the non-LifeF/X operations have been
reflected as a discontinued operation in the accompanying
consolidated financial statements for all periods presented. Refer
to note 3 - Discontinued Operation and Spin Off Transaction.
(b) Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number
of common shares outstanding during the period in accordance with SFAS
No. 128, "Earnings Per Share." Diluted earnings (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Diluted earnings (loss) per
share is computed similarly to fully diluted earnings (loss) per share
pursuant to APB Opinion No. 15.
There were 741,013 and 5,737,460 common stock options outstanding at
March 31, 1999 and 2000, respectively, and 27,951,312 warrants to
purchase shares of common stock at March 31, 2000 which were not
included in the computation of diluted loss per share because the
impact would have been antidilutive.
(2) Acquisition of Pacific Title/Mirage, Inc.
by Fin Sports U.S.A., Inc.
On December 14, 1999, Fin Sports U.S.A., Inc. acquired all of the
outstanding capital stock of Pac Title/Mirage through the merger of a
wholly owned subsidiary of Fin Sports with and into Pac Title/Mirage,
with Pac Title/Mirage as the surviving corporation. Since the
shareholders of Pac Title/Mirage received the majority voting interests
in the combined company, Pac Title/Mirage is the acquiring enterprise for
financial reporting purposes. The transaction was recorded as a reverse
acquisition using the purchase method of accounting whereby equity of
Pac Title/Mirage was adjusted for the fair value of the acquired tangible
net assets of the wholly owned subsidiary of Fin Sports.
6
<PAGE>
Because Pac Title/Mirage was the acquirer for accounting purposes, the
operating results for the period January 1, 1999 through the date of the
transaction, December 14, 1999, reflect those of Pac Title/Mirage, not
Fin Sports. Operating results thereafter reflect the combined operations
of Pac Title/Mirage and Fin Sports.
The operating results reflected in the accompanying consolidated financial
statements do not include Fin Sport's operating activities prior to
December 14, 1999, the date of the Merger. The following summarized pro
forma information assumes the Merger occurred on January 1, 1999.
<TABLE>
<CAPTION>
Quarter ended
March 31,
1999
-------------------
<S> <C>
Revenue $ --
Loss from continuing operations (374,600)
Loss per share from continuing operations (.03)
Weighted average shares outstanding 12,999,917
</TABLE>
(3) Discontinued Operation and Spin Off Transaction
On March 20, 2000, the Company sold all of its non-LifeF/X assets and
liabilities (collectively, the "Spin Off Assets and Liabilities") to PTM
Productions, Inc. (PTM Productions), an entity owned by the pre-Merger Pac
Title/Mirage stockholders. The Spin Off Assets and Liabilities consisted
primarily of the assets and liabilities relating to Pac Title/Mirage's
Optical Division, Scanning and Recording Division and now defunct Digital
Division, including: certain leased and owned real property, outstanding
bank debt and certain debt owed to Safeguard for loans made by Safeguard to
Pac Title/Mirage during the period between October 1, 1999 and the
consummation of the spin off transaction (the Post September 30 Debt).
Neither the Company nor its stockholders will be entitled to any beneficial
interest in the Spin Off Assets and Liabilities. At the date of the spin
off transaction, the liabilities of the non-LifeF/X operations exceeded
the assets of the non-LifeF/X operations by $3,704,867 and, as a result,
the Company recorded an increase to additional paid-in capital to reflect
that the liabilities assumed by PTM Productions exceeded the net assets
transferred to PTM Productions.
7
<PAGE>
In connection with the spin off transaction, the Company obtained consents
from a number of third parties, including its bank lender, which holds a
lien covering all of its assets, including the LifeF/X technology. Assets
relating to the LifeF/X technology were released in conjunction with the
spin off. As part of the spin off transaction, the Company transferred
this bank debt to PTM Productions and Safeguard has agreed to indemnify the
Company from and against any and all losses and liabilities relating to or
arising from the bank debt. In addition, in connection with the spin off
transaction, PTM Productions and Safeguard have provided certain
indemnities to the Company for the Spin Off Assets and Liabilities. In
consideration for the Safeguard indemnification, subject to any senior
liens, Safeguard has been granted a security interest in the Spin Off
Assets and Liabilities and will be entitled to any excess operating
proceeds or sale proceeds from the Spin Off Assets and Liabilities to
secure repayment of the Post September 30 Debt and reimbursement of
indemnification amounts paid by Safeguard to the Company.
In addition to the Safeguard indemnity described above, Safeguard will
indemnify the Company for shortfalls in the day-to-day operating expenses
of the Optical and Scanning and Recording Divisions under contracts and
other arrangements entered into in the ordinary course of business of such
Divisions, but not for claims, losses or liabilities outside the ordinary
course of the day-to-day operations of these Divisions or any other
unusual claims or liabilities including, without limitation, any disputes,
litigation or other proceedings whether arising under contracts or other
arrangements entered into in the ordinary course or otherwise, claims by
present or former employees and claims relating to any sale or transfer
(whether or not consummated) of any or all of the Spin Off Assets and
Liabilities.
Neither PTM Productions nor Safeguard will indemnify the Company for any
losses or liabilities relating to any Spin Off Assets and Liabilities to
the extent they are actually used in the LifeF/X business.
As discussed in note 1 - Summary of Significant Accounting Policies, the
Company's Board of Directors decided to dispose of the non-LifeF/X
operations in March 1999 and the Company has accounted for the
non-LifeF/X operations as a discontinued operation.
The operating loss incurred by the discontinued operation during the
period from January 1, 2000 to March 20, 2000 was $1,839,500. This
amount was applied to the "Accrued liability for estimated operating
losses of discontinued operation for remaining disposal period"
established in the year ended December 31, 1999.
At March 31, 2000, the consolidated balance sheet reflects a $565,311
payable to PTM Productions by LifeF/X. This represents disbursements by
PTM Productions for LifeF/X payroll and other operating expenses that were
reimbursed by LifeF/X subsequent to March 31, 2000.
(4) Other Long-term Liabilities
Other long-term liabilities of $322,699 represents the long-term portion
of accrued severance payable to a former executive. This is payable
quarterly over three years beginning in March 2000. At March 31, 2000,
the current portion included in accrued liabilities amounted to $156,366.
(5) Stock Options
During the quarter ended March 31, 2000 the Company's Board of Directors
accelerated the vesting of certain stock options held by employees of the
discontinued operation that are no longer LifeF/X employees after the date
of the spin-off. This modification of terms and the increase in the
intrinsic value of these stock options resulted in expense of $812,745. In
addition, the Company extended the exercise period for stock options held
by a former employee of the discontinued operation. This modification of
terms resulted in an expense of $145,399. These items, which totaled
$958,188, were provided for in the "Accrued liability for estimated
operating losses of the discontinued operation" established in the year
ended December 31, 1999 and were included in the loss of the discontinued
operation applied to that account in the quarter ended March 31, 2000, with
an offsetting increase in additional paid-in capital.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
The following discussion should be read with the consolidated
financial statements and the related notes. Certain statements that are not
related to historical results, including statements regarding LifeF/X's
business strategy and objectives, future financial position, expectations
about pending litigation and estimated cost savings, are forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), and involve risks and uncertainties. Although
management believes that the assumptions on which these forward-looking
statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate and actual results could differ
materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include regulatory
policies, competition from other similar businesses, and market and general
economic factors. All forward-looking statements contained in this Form 10-QSB
are qualified in their entirety by this statement.
Background - Merger Transaction and Sale of Non-LifeF/X Technology Assets
On December 14, 1999, Fin Sports acquired all of the outstanding capital
stock of Pac Title/Mirage as a result of the merger of a newly-formed
subsidiary of Fin Sports into Pac Title/Mirage, which was the surviving
corporation. Fin Sports was formed in 1987 and was involved in the
manufacture and marketing of sports equipment. From September 1993 until
the December 14, 1999 merger, Fin Sports had no active business operations.
Since the shareholders of Pac Title/Mirage received the majority voting
interests in the combined company, Pac Title/Mirage is the acquiring
enterprise for financial reporting purposes. Because Pac Title/Mirage was the
acquirer for accounting purposes, the financial statements presented are
those of Pac Title/Mirage, not Fin Sports. Following the merger, the
corporate name of Fin Sports was changed to Lifef/x, Inc. and Pac Title/Mirage
changed its name to Lifef/x Networks, Inc. Lifef/x Networks, Inc. is a
wholly-owned subsidiary of Lifef/x, Inc.
Pac Title/Mirage was formed in 1997 as the combination of the LifeF/X
technology that was contributed by Mirage Technologies LP and an optical 2D
and restoration business that was acquired from Pacific Title and Art Studio,
a post production company founded in 1918. From Pac Title/Mirage's formation
until the merger, Pac Title/Mirage operated primarily as a visual effects
company providing services to the U.S. film and television entertainment
industry. Its operations consisted of four activities: LifeF/X technology
development; optical 2D effects and film restoration; film scanning and
recording services; and digital effects. Because of the combined effects of
unfavorable market conditions in the film entertainment industry and continued
operating losses, the digital effects division was closed in early 1999. The
LifeF/X technology development is continuing as the primary business of
LifeF/X.
9
<PAGE>
Pac Title/Mirage incurred losses from its inception. Safeguard
Scientifics, Inc. which owned approximately 49% of Pac Title/Mirage,
loaned Pac Title/Mirage significant amounts to support the operations
of the business and to finance capital expenditures. In March 1999, Pac
Title/Mirage's Board of Directors decided to concentrate Pac Title/Mirage's
efforts on LifeF/X development, with primary emphasis on Internet applications
and, initiated steps to dispose of the remaining non-LifeF/X operations,
intending to reduce cash outflows from the non-LifeF/X operations and to
reduce or eliminate Pac Title/Mirage's bank debt. Therefore, the non-LifeF/X
operations have been reflected as a discontinued operation in the accompanying
consolidated financial statements for all periods presented.
In March 2000, LifeF/X sold its remaining non-LifeF/X operations, which
consisted of optical 2D film and restoration and scanning and recording
services, to PTM Productions, Inc. PTM Productions, Inc. is owned by the
pre-merger Pac Title/Mirage shareholders. This sale included a transfer
of all liabilities associated with the discontinued operation, incluing all
debt. As a result, LifeF/X is presently debt-free, other than accounts
payable and accrued expenses. In addition, Safeguard has fully indemnified
LifeF/X against all liabilities associated with the discontinued operation.
Results of Operations
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Revenue - All of our products are currently in the research and
development or planning stages and there have been no sales from the LifeF/X
technology through March 31, 2000, and we do not expect any revenue
until 2001.
General and administrative expenses - General and administrative expenses
were $1,242,970 for the quarter ended March 31, 2000 compared to $53,919 for
the quarter ended March 31, 1999, an increase of $1,189,051. This increase
is primarily due to the following items:
(1) In December 1999, LifeF/X recorded deferred stock compensation of
$2,928,689 on stock options issued to an officer. This amount is being
amortized ratably as options vest over the two year vesting period of the
options. The related expense recorded in the quarter ended March 31, 2000
and included in general and administrative expenses was $292,869.
(2) Administrative salaries and wages increased by $209,000 for the
quarter ended March 31, 2000 over the comparable period last year as a
result of the increased number of employees.
(3) Professional services were $510,000 higher than the same period of
1999 due to significant legal and audit expenses relating to the
registration of LifeF/X Common Stock and other filings, plus general
corporate matters relating to corporate organization.
10
<PAGE>
Research and development expenses - Research and development expenses
were $677,717 for the quarter ended March 31, 2000 compared to $311,948
for the quarter ended March 31, 1999, an increase of $365,769.
Research and development consists of costs related to LifeF/X development
activities. Salaries and wages, related personnel benefits and outside
consultants expenses for the LifeF/X development personnel included in
research and development were $494,000 for the quarter ended March 31, 2000
compared to $179,000 for the quarter ended March 31, 1999, an increase
of $315,000. This reflects increased full-time research and development
personnel and consulting staff, primarily at LifeF/X's Boston office, over
the comparable period of last year.
LifeF/X has an exclusive, world-wide, perpetual license agreement
with Auckland UniServices Limited for the continuum modeling technology that
is used in LifeF/X development. Recurring license and development fees paid
under the agreement included in research and development costs were $125,000
for the quarter ended March 31, 1999 and $112,500 for the quarter ended
March 31, 2000.
Results for the quarter ended March 31, 2000 include interest income of
$209,353. This interest income relates to the proceeds from the private
placement offering that are being held in highly liquid short-term investments.
Discontinued operation - In March 1999, Pac Title/Mirage's Board of
Directors decided to concentrate on LifeF/X development and initiated steps
to dispose of non-LifeF/X operations. Results from the discontinued
operation for the quarter ended March 31, 1999 consist of the following:
(1) An operating loss on discontinued operation prior to the measurement
date (March 31, 1999) of $3,002,332 (which includes a $1,400,000 impairment
loss on long-lived assets), and (2) a $17,549,874 provision for loss on
disposal of discontinued operation for the following: an $11,949,874 reserve
for estimated operating losses on discontinued operation from the measurement
date through the estimated remaining disposal period and an estimated loss
on disposal of $5,600,000.
Liquidity and Capital Resources
On March 20, 2000, LifeF/X sold its non-LifeF/X assets, which consisted
of film title and special effects services, to PTM Productions, Inc., an
entity owned by the pre-Merger Pac Title/Mirage shareholders. The sale
included a transfer of all liabilities associated with the discontinued
operation, including all debt. As a result, LifeF/X is presently debt-free,
other than accounts payable and accrued expenses. In addition, Safeguard has
fully indemnified LifeF/X against all liabilities associated with the
discontinued operation. See note 3 to the accompanying consolidated financial
statements. Historically, our revenues have been solely related to our
discontinued operation.
We expect the cash balances of $15.4 million at March 31, 2000 will be
adequate to satisfy our cash requirements for our operations in the year 2000
and the first quarter of 2001.
11
<PAGE>
Concurrent with the Merger, LifeF/X initiated a private placement offering
to raise $18 million through the sale to certain investors of 6,000,000 units at
$3.00 per unit, each unit consisting of: (i) one share of Common Stock and (ii)
a warrant to purchase .01 share of Common Stock at $7.50 per share, exercisable
within 18 months after purchase. The private placement was fully subscribed and
we received all funds. At December 31, 1999 we or our escrow agent had received
over $17,000,000. The first portion of the private placement closed in December
1999 and the second portion closed in February 2000.
These proceeds were raised to fund continuing LifeF/X development, with
primary emphasis on Internet applications of the technology. The funds raised
in the private placement will be used for the continuing LifeF/X business.
In addition to LifeF/X Internet development, the proceeds of the private
placement will be used to fund product marketing and distribution, acquire
management and support resources and build the infrastructure to facilitate
future growth. The proceeds of the private placement have been and, until
expended, will be invested in highly liquid short-term investments.
Net cash used in operating activities was $929,000 for three months ended
March 31, 2000. This use was primarily due to the net loss for the period,
partially offset by a non-cash expense of $293,000 relating to stock options
and a $699,000 increase in accounts payable and accrued liabilities. Net
cash used in operating activities for the comparable period of the prior year
was $3.4 million. This was primarily due to the $20.9 million net loss for
the period, partially offset by non-cash expense of $17.5 million to provide
for an estimated loss on disposal of discontinued business. $3.0 million of
the $3.4 million net cash used for the period related to the operating loss
of the discontinued operation for the period.
Net cash used in investing activities was $338,000 for the three months
ended March 31, 2000 representing purchases of plant and equipment. No cash
was used in investing activities for the comparable period of the prior year
by LifeF/X.
Net cash provided by financing activities for the three months ended
March 31, 2000 was $8.9 million. This primarily represents the receipt of
proceeds of $9.1 million from the sale of stock through private placement
that were held in escrow at December 31, 1999. Net cash provided by
financing activities for the comparable period of the prior year were $3.4
million, primarily representing proceeds from loans from Safeguard.
Inflation
We do not believe that inflation has had any material effect on our
business over the past two years.
Year 2000 Issues
The Year 2000 computer problem refers to the potential for system and
processing failure of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the Year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
To date, we have not experienced any Year 2000 issues with any of our
internal systems or services, and we do not expect to experience any.
12
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- --------------------------
The Company was not involved in any material claims or legal proceedings,
nor has it been involved in any such proceedings that have had or may have a
significant effect on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise, during the quarter ended
March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a). Exhibit 21.1 - Subsidiaries
Exhibit 27.1 - Financial Data Schedule
(b). Reports on Form 8-K
A Form 8-K was filed on December 15, 1999 to report the acquisition
on December 14, 1999 of Pacific Title/Mirage, Inc. by Fin
Sports U.S.A., Inc. This was amended by the filing of Form 8-K/A on
February 29, 2000 and Form 8-K/A, Amendment No. 1, on March 2, 2000
to provide the financial statements of the acquired business as
required by Form 8-K.
13
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LIFEF/X, INC.
-------------
/s/ Michael Rosenblatt
-------------------------
Michael Rosenblatt
Chairman of the Board
and Co-President
May 15, 2000
/s/ Lucille S. Salhany
-----------------------
Lucille S. Salhany
Co-President and Chief
Executive Officer
May 15, 2000
/s/ Richard A. Guttendorf, Jr.
-------------------------------
Richard A. Guttendorf, Jr.
Chief Financial Officer
and Secretary
May 15, 2000
14
<PAGE>
EXHIBIT 21.1
LIFEF/X, INC.
SUBSIDIARIES
The following is a list of the parent and its subsidiary, reflecting ownership
and the state of incorporation:
<TABLE>
<CAPTION>
% of Voting
Securities
Parent Subsidiaries Owned
- ------ ------------ -----------
<S> <C> <C>
Lifef/x, Inc. Lifef/x Networks, Inc. 100%
(Nevada) (Delaware)
</TABLE>
All subsidiaries are included in the consolidated financial statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,430,917
<SECURITIES> 0
<RECEIVABLES> 12,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,578,250
<PP&E> 337,575
<DEPRECIATION> 6,410
<TOTAL-ASSETS> 16,155,665
<CURRENT-LIABILITIES> 1,597,489
<BONDS> 0
0
0
<COMMON> 19,011
<OTHER-SE> 14,216,466
<TOTAL-LIABILITY-AND-EQUITY> 16,155,665
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,274
<INCOME-PRETAX> (1,723,608)
<INCOME-TAX> 2,056
<INCOME-CONTINUING> (1,725,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,725,664)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
