<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 18, 2000
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SHANECY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-25521 88-0407731
-------- ------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
9777 Wilshire Boulevard, Beverly Hills, CA 90212
------------------------------------------------
(Address of principal executive offices/Zip Code)
Registrant's telephone number, including area code: (310) 205-6090
--------------
Former name, former address, and former fiscal year,
if changed since last report:
1530-625 Howe Street, Vancouver, British Columbia V6C2T6
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<PAGE>
Forward-Looking Statements
There are forward-looking statements in this document, and in Shanecy,
Inc.'s (to be known as Inc.ubator Capital, Inc., and referred to in this
document as Inc.ubator) public documents to which they may refer, that are
subject to risks and uncertainties in addition to those set forth above. These
forward-looking statements include information about possible or assumed future
results of Inc.ubator's operations. Also, when any of the words "may," "will,"
"believe," "expect," "anticipate," "estimate," "continue" or similar expressions
are used, Inc.ubator is making forward-looking statements. Many possible events
or factors, including but not limited to those set forth herein, could affect
future financial results and performance. This could cause Inc.ubator's results
or performance to differ materially from those expressed in any forward-looking
statements. These and other risks are described in Inc.ubator's other publicly
filed documents and reports that are available from Inc.ubator and from the SEC.
<PAGE>
Item 2. Acquisition or Disposition of Assets
Inc.ubator is filing this Current Report on Form 8-K/A to amend the
Current Report on Form 8-K filed on February 2, 2000 to provide information
regarding subsequent events related to the acquisitions discussed herein and to
correct and clarify information previously disclosed.
Brunswick Capital Partners, Inc.
Through its wholly-owned subsidiary, Shanecy Holding Inc. ("SHI"),
Inc.ubator acquired preferred stock (the "eCard Solutions Stock") in eCard
Solutions, Inc. (formerly Brunswick Capital Partners, Inc.) ("eCard Solutions"),
convertible into 40% of the common stock of eCard Solutions. SHI acquired the
eCard Solutions Stock by way of merger, on January 11, 2000, with Thesseus
Holdings, Inc., a wholly-owned subsidiary of Thesseus International Asset Fund
N.V. ("Thesseus"). At the time of the merger, several principals of Thesseus
were also officers and/or directors of Inc.ubator. SHI was the surviving
corporation in the merger. The consideration agreed to be paid for the eCard
Solutions Stock, together with the InfoBase Stock described below, was 2,000,000
shares of restricted common stock of Inc.ubator. The agreement between the
parties contemplated that the payment be made on or before February 29, 2000.
The amount of consideration was determined by the market price of Inc.ubator's
stock at the end of December 1999, and was calculated to equal the book value of
the eCard Solutions Stock. Effective January 18, 2000, Incubator and SHI amended
their agreement with Thesseus with respect to the acquisition of eCard Solutions
and InfoBase Direct Marketing Services, Inc. to change the delivery date of the
2,000,000 shares of common stock that Thesseus was entitled to receive as
consideration from February 29, 2000 until the filing and effectiveness of an
Amended and Restated Certificate of Incorporation with the Secretary of the
State of Delaware increasing Inc.ubator's authorized stock.
eCard Solutions is a national, specialty financial services company
that intends to use proprietary database mining, marketing techniques, automated
systems and information technology to issue credit cards to moderate income
consumers. eCard Solutions will manage the resulting portfolio of accounts in an
attempt to ensure that they remain in a performing status. General purpose
credit cards have become the primary payment mechanism for e-commerce
transactions over the Internet. eCard Solutions is headquartered in Sioux Falls,
South Dakota and its management has over ten years experience in the origination
and servicing of credit cards.
The income level of moderate income consumers ($25,000 to $50,000 per
year) presents a profile that is unattractive to the majority of credit card
issuers who are focused on the upper income consumer who can qualify for gold
and platinum cards. Given their economic circumstances, eCard Solutions believes
moderate income consumers that have had access to credit often experience
problems due largely to circumstances beyond their control (i.e. employment
interruption, marriage break-up, extended uninsured illness, etc.). Once a
credit problem has tarnished an individual's credit report, it becomes extremely
difficult to obtain new credit, regardless of the change in the individual's
economic circumstances. Compounding the credit access problems of many moderate
income consumers is the fact that they generally have not been schooled in the
basics of personal financial management.
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To address the opportunity represented by this underserved, 30 million
to 40 million household market, eCard Solutions intends to use proprietary data
mining, neural network analysis and database management software, to identify
those moderate income consumers who it believes have a high probability of
handling a credit card responsibly. It is intended that identified individuals
are then sent skillfully prepared direct mail pieces, which will be followed up
by telephone contact. The telephone contact is intended to focus the consumer on
the offer, gathers comprehensive current information so that underwriting the
credit application can properly evaluate the consumer's present financial status
and educate the consumer on the importance of the timely payments. eCard
Solutions believes that the telephone contact also represents the first
important step in building a personalized relationship between eCard Solutions
and the customer. The initial credit limit established will be generally $300 to
$2,500, which will permit the borrower to demonstrate that the credit now
available can be successfully handled. The consumer will earn additional credit
in two ways. First, as the balance owed is paid down, automatic access will be
provided to additional credit up to the approved limit. Second, as successful
payment performance is demonstrated, the credit limit will be increased. Thus,
consumers will be given every incentive to properly handle the credit made
available as a means of improving their overall credit profile, as well as
gaining expanded credit availability from eCard Solutions.
eCard Solutions intends to establish relationships with a number of
leading vendors regarding credit card origination, issuing, processing and
servicing. Through these relationships, eCard Solutions anticipates that it will
be able to cost-effectively optimize the operational aspects of its business, as
well as scale up or down as conditions and circumstances warrant. In turn,
Inc.ubator believes these arrangements will permit eCard Solutions' management
to concentrate their efforts and energies on marketing and account management
functions.
eCard Solutions intends to use several companies to market its programs
and acquire customers. One of the companies used will be InfoBase Direct
Marketing Services, Inc., an affiliated company. Unsecured VISA(R) credit cards
will be issued to eCard Solutions' customers through an Issuing and
Participation Agreement with CorTrust Bank, NA, Sioux Falls, South Dakota
("CTB"). CTB will be responsible for compliance and regulatory issues, account
set up, daily settlement, customer service, complaints, and customer
correspondence, as well as all aspects of account servicing and delinquency
management under eCard Solutions' oversight and in accordance with eCard
Solutions' policies. eCard Solutions has also entered into an agreement with
Universal Transactions, Inc. ("UTI") to provide fully automated, on line, credit
scoring and application processing and underwriting. UTI's system accesses the
consumer's credit report and automatically evaluates it relative to underwriting
guidelines that have been established by eCard Solutions and CTB. First Data
Resources, Inc. will be responsible for all credit card payment processing,
collections, and billing.
eCard Solutions also intends to market credit cards to moderate income
consumers via the Internet. Developmental efforts are currently underway with
respect to an Internet based, online account processing and underwriting system.
Upon completion, the consumer would be able to apply for eCard Solutions
products online and be given a credit approval decision in seconds, all in
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accordance with eCard Solutions' pre-established underwriting criteria. eCard
Solutions further intends to provide interactive customer service support,
permitting the customer to make online inquiries regarding their applications
and obtain other account information, make inquiries, resolve account issues,
etc.
On March 13, 2000, a transaction was completed by which: (i) eCard
Solutions issued 255 shares of common stock to three new stockholders who also
became employees of eCard Solutions, (ii) eCard Solutions filed an amendment to
its articles of incorporation to create two separate series of preferred stock
(i.e. Series A and Series B) and to change its name to eCard Solutions, Inc.
from its former name of Brunswick Capital Partners, Inc., (iii) eCard Solutions
issued to Inc.ubator 1,000,000 shares of Series B Preferred Stock for
$1,000,000, to be paid on an installment basis, and (iv) eCard Solutions
repurchased 255 shares of common stock from one of its existing stockholders.
eCard Solutions has the right to redeem the Series B Preferred Shares held by
Inc.ubator for $1.00 per share until March 1, 2003. The preferred stock
originally acquired by Inc.ubator was reclassified as Series A Preferred Stock.
The Series A Preferred Stock is convertible into 20% of the common stock of
eCard Solutions at any time after March 1, 2003 if the Series B Preferred Stock
has been redeemed on or before such date. If the Series B Preferred Stock has
not been redeemed on or before such date, then the Series A Preferred Stock and
the Series B Preferred Stock will, together, be convertible by Inc.ubator into
40% of the common stock of eCard Solutions.
InfoBase Direct Marketing Services, Inc.
Through a wholly-owned subsidiary, Shanecy Holdings, Inc. ("SHI"),
Inc.ubator acquired preferred stock (the "InfoBase Stock") in InfoBase Direct
Marketing Services, Inc. ("InfoBase"), convertible into 49% of the common stock
of InfoBase. SHI acquired the InfoBase Stock by way of merger, on January 11,
2000, with Thesseus Holdings, Inc., a wholly-owned subsidiary of Thesseus. At
the time of the merger, several principals of Thesseus were also officers and/or
directors of Inc.ubator. SHI was the surviving corporation in the merger. The
consideration agreed to be paid for the InfoBase Stock, together with the eCard
Solutions Stock described above, was 2,000,000 shares of restricted common stock
of Inc.ubator. The amount of consideration was determined by the market price of
Inc.ubator's stock at the end of December 1999, and was calculated to equal the
book value of the InfoBase Stock. Effective January 18, 2000, Inc.ubator and SHI
amended their agreement with Thesseus with respect to the acquisition of eCard
Solutions and InfoBase to change the delivery date of 2,000,000 shares of common
stock that Thesseus was entitled to receive as consideration from February 29,
2000 until the filing and effectiveness of an Amended and Restated Certificate
of Incorporation with the Secretary of the State of Delaware increasing
Inc.ubator's authorized stock.
InfoBase is an information based, technology driven direct marketing
company that designs, develops and implements sophisticated inbound and outbound
marketing programs using the Internet and computerized call management systems
for companies targeting the moderate income consumer. InfoBase has developed
proprietary software to facilitate sales tracking, data mining, neural
networking and data base management designed to individually target consumers.
The management of InfoBase has over 60 years experience designing and
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implementing inbound and outbound programs to moderate income consumers and is
headquartered in Carlsbad, California.
InfoBase provides its clients inbound/outbound telemarketing and
Internet based services consisting of direct sales activities, integrated direct
mail programs, call list analysis profiling, sales tracking, data analysis and
reporting. Dialing strategies are created and distributed as calling campaigns
to the sales agents. InfoBase's computerized call management system utilizes
predictive dialers that automatically dial telephone numbers, determine if a
live connect is made and present connected calls to a sales agent.
InfoBase provides inbound teleservices support for activities such as
customer service, response to customer inquiries, and order processing. InfoBase
uses automated call distributors (Voice Response Units) to direct callers to the
appropriate agent, who has access to on-line support databases to address
customers' needs. Scripts are drafted and approved by the client for sales
agents to utilize. To enable quality assurance, call monitoring and sales
verification are employed. All sales confirmations are recorded and management
personnel verify accuracy and authenticity of transactions.
InfoBase utilizes the latest technologies to extract data from the
client's database for sales/performance analysis and reporting. Data mining,
neural networking and fuzzy logic software helps InfoBase's staff design,
develop and analyze key information for clients relative to the performance of
their programs. Reports are produced on request, daily, weekly and monthly. Pre
and post sales analysis of call lists are provided for the client so it may
evaluate the effectiveness of InfoBase's sales techniques and strategies.
InfoBase provides integrated direct mail programs that are developed
and tailored to each client's customer base. It achieves a higher response rate
to the mailing as calling campaigns are implemented to coincide with the mail.
Given the growing potential of primary channel alternatives, InfoBase
is constantly expanding its capabilities in database marketing. InfoBase has
brought its customer list in house for this first phase as its database
sophistication is expanded. Registration cards and periodic customer surveys
assist InfoBase in understanding its customer and measure the success of the
marketing, sales and product activities. Profile overlays of other lists fill in
the awareness gaps. This in-house presence provides the sales and technical
support teams with tools that streamline operations while updating customer
knowledge. InfoBase's customer information system helps in making sound
decisions by providing historical answers to the marketing questions posed.
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<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The most recent audited financial statements of InfoBase and eCard
Solutions as of December 31, 1999 and 1998 and the related statements
of operations and deficit and cash flows for each of the two years in
the period ended December 31, 1999 and for the periods from
incorporaton to December 31, 1999 are included in Exhibit 99.1.
(b) Pro-forma Financial Information
The unaudited pro forma consolidated balance sheet as at December 31,
1999, and the unaudited pro forma consolidated statements of operations
for the nine months ended December 31, 1999 and for the year ended
March 31, 1999, give effect to the acquisition of each of InfoBase and
eCard Solutions. The unaudited pro forma financial information is based
on the historical financial statements of the Company, InfoBase and
eCard Solutions. The unaudited pro forma consolidated balance sheet
gives effect to the acquisitions as if they had occurred on December
31, 1999, and the unaudited pro forma consolidated statements of
operations give effect to the acquisitions as if they had occurred on
January 1, 1998.
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Balance Sheet (note 3)
As at December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 64,893 $ - $ 64,893
Subscriptions receivable 25,000 - 25,000
Prepaids 75,000 - 75,000
Due from related parties 24,871 - 24,871
------------ ------------- ------------
189,764 - 189,764
Investments
Eikos Management, LLC 6,556,869 - 6,556,869
Brunswick Capital Partners, Inc. - 6,276,996 6,276,996
InfoBase Direct Marketing
Services, Inc. - 367,791 367,791
Other assets 2,000 - 2,000
------------ -------------- ------------
$6,748,633 $6,644,787 $13,393,420
============ ============== ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued $ 12,016 $ - $ 12,016
liabilities
Shares subscribed but unissued 140,000 - 140,000
Shareholders' Equity
Common shares 17,490 2,000 19,490
Preferred shares to be
authorized and issued 6,592,494 - 6,592,494
Additional paid-in capital 27,185 6,642,787 6,669,972
Deficit (40,552) - (40,552)
------------ ------------- ------------
Total shareholders' equity 6,596,617 6,644,787 13,241,404
------------ ------------- ------------
Total liabilities and shareholders'
equity $6,748,633 $6,644,787 $13,393,420
============ ============= ============
</TABLE>
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Statement of Operations (note 3)
Nine months ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Bank interest $ 33 $ - $ 33
Losses of equity accounted
investees - (697,434) (697,434)
----------- ------------ ------------
Total revenue 33 (697,434) (697,401)
----------- ------------ ------------
Expenses:
Selling, general and administrative expenses 24,732 - 24,732
----------- ------------ ------------
Total expenses 24,732 - 24,732
----------- ------------ ------------
Net loss $ (24,699) $ (697,434) $ (722,133)
=========== ============ ============
Net loss per share $ (0.05)
============
</TABLE>
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Statement of Operations (note 3)
Year ended March 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Bank interest $ - $ - $ 0
Losses of equity accounted
investees - (501,469) (501,469)
---------- ----------- -------------
Total revenue - (501,469) (501,469)
---------- ----------- -------------
Expenses:
Selling, general and administrative expenses 3,578 - 3,578
---------- ----------- -------------
Total expenses 3,578 - 3,578
---------- ----------- -------------
Net loss $ (3,578) $(501,469) $ (505,047)
========== =========== =============
Net loss per share $ (0.04)
=============
</TABLE>
<PAGE>
SHANECY, INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Basis of presentation:
The accompanying unaudited pro forma consolidated financial statements of
Shanecy, Inc. ("Shanecy") are based upon the historical financial
statements of Shanecy giving effect to the transaction described in note 2.
These pro forma financial statements do not purport to represent Shanecy's
financial position and results of operations that would have been attained
had the transactions actually taken place at the dates indicated and do not
purport to be indicative of the effects that may be expected to occur in
the future. These pro forma financial statements also do not give effect to
any events, including any synergies that Shanecy is able to achieve, other
than those discussed in the notes to the pro forma financial statements.
The pro forma financial statements have been compiled from financial
information in the:
(a) unaudited consolidated financial statements of Shanecy as at and for
the nine months ended December 31, 1999;
(b) audited financial statements of Shanecy as at and for the year ended
March 31, 1999;
(c) audited financial statements of Brunswick Capital Partners, Inc.
("BCP") and InfoBase Direct Marketing Services, Inc. ("IDMS"), together
hereinafter called the "BCP / IDMS Businesses", as at and for the
years ended December 31, 1999 and 1998;
(d) unaudited information of BCP and IDMS included in their internal books
of account; and
(e) the additional information set out in note 2.
These pro forma financial statements should be read in conjunction with the
financial statements of BCP and IDMS included elsewhere in this Form 8-K/A.
Shanecy's consolidated financial statements are prepared by management in
accordance with United States generally accepted accounting principles
("GAAP"). The BCP / IDMS Businesses amounts have been extracted from the
financial statements of the BCP / IDMS Businesses prepared in accordance
with GAAP.
2. Pro forma transactions and assumptions:
In January, 2000, Shanecy, through its wholly-owned subsidiary Shanecy
Holdings, Inc., acquired preferred shares in BCP, convertible into 40% of
BCP's outstanding common shares, and preferred shares of IDMS, convertible
into 49% of IDMS' outstanding common shares, for consideration of 2,000,000
common shares of Shanecy.
<PAGE>
SHANECY, INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
- -------------------------------------------------------------------------------
2. Pro forma transactions and assumptions (continued):
These investments were acquired from Thesseus International Asset Fund
N.V., ("Thesseus"), which has certain directors in common with Shanecy and
is a significant shareholder of Shanecy. Accordingly, the values of the
investments acquired in this transaction have been determined based on
their book value in the accounts of Thesseus.
3. Pro forma adjustments:
(a) Pro forma consolidated balance sheet:
The pro forma consolidated balance sheet gives effect to the acquisitions
as if they had occurred on December 31, 1999.
(b) Pro forma consolidated statements of operations:
The pro forma consolidated statements of operations give effect to the
acquisitions as if they had occurred on January 1, 1998.
Shanecy has adopted the equity method of accounting for these investments,
which are subject to significant influence by Shanecy. As Shanecy has a
March 31 fiscal year end and the BCP / IDMS Businesses have December 31
fiscal year ends, Shanecy has included the investees' operating results for
the year ended December 31, 1998 in its pro forma operating results for the
year ended March 31, 1999. Similarly, Shanecy's pro forma operating results
for the nine months ended December 31, 1999 include the investees'
operating results for the nine months ended September 30, 1999.
4. Share capital:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Number of Additional
common Stated paid-in
shares values capital
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Share capital, Shanecy 17,490,000 $17,490 $ 27,185
Shares to be issued on acquisition of BCP and IDMS 2,000,000 2,000 6,642,787
---------------------------------------------------------------------------------------------------------
Balance 19,490,000 $19,490 $6,669,972
---------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma net loss per share has been calculated by dividing pro forma net
loss by the weighted average number of shares outstanding. The weighted
average number of shares outstanding represents Shanecy's weighted average
number of shares outstanding for the nine months ended December 31, 1999
and for the year ended March 31, 1999, in each instance plus the 2,000,000
common shares to be issued for the acquisition of the BCP / IDMS,
Businesses assuming such shares had been issued on January 1, 1998.
<PAGE>
(c) The following is a list of the Exhibits:
2.1 Acquisition Agreement dated December 30, 1999 between Shanecy
Holdings, Inc. and Shanecy, Inc.*
2.2 Agreement and Plan of Merger dated December 30, 1999 among Shanecy
Holdings, Inc., Shanecy, Inc., Thesseus Holdings, Inc. and
Thesseus International Asset Fund N.V.*
2.3 Acquisition Agreement dated December 30, 1999 between Thesseus
Holdings, Inc. and Thesseus International Asset Fund N.V.*
2.4 Amendment to Agreement and Plan of Merger dated December 30, 1999
among Shanecy Holdings, Inc., Shanecy, Inc., Thesseus Holdings,
Inc. and Thesseus International Asset Fund N.V.
99.1 Audited financial statements of InfoBase and eCard Solutions as of
December 31, 1999 and 1998 and the related statements of
operations and deficit and cash flows for each of the two years in
the period ended December 31, 1999 and for the periods from
incorporation to December 31, 1999.
99.2 Press Release dated January 20, 2000*
- --------
* Incorporated by reference from the Current Report in Form 8-K, dated
January 18, 2000, filed with the SEC on February 2, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHANECY, INC.
Date: April 1, 2000 By: /s/ Michael Bodnar
---------------- -------------------
Michael Bodnar
Treasurer and Chief Financial Officer
8
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Acquisition Agreement dated December 30, 1999 between Shanecy
Holdings, Inc. and Shanecy, Inc.*
2.2 Agreement and Plan of Merger dated December 30, 1999 among Shanecy
Holdings, Inc., Shanecy, Inc., Thesseus Holdings, Inc. and Thesseus
International Asset Fund N.V.*
2.3 Acquisition Agreement dated December 30, 1999 between Thesseus
Holdings, Inc. and Thesseus International Asset Fund N.V.*
2.4 Amendment to Agreement and Plan of Merger dated December 30, 1999
among Shanecy Holdings, Inc., Shanecy, Inc., Thesseus Holdings, Inc.
and Thesseus International Asset Fund N.V.
99.1 Audited financial statements sheets of InfoBase and eCard Solutions
as of December 31, 1999 and 1998 and the related statements of
operations and deficit and cash flows for each of the two years in
the period ended December 31, 1999 and for the periods from
incorporation to December 31, 1999.
99.2 Press Release dated January 20, 2000*
- ----------------
* Incorporated by reference from the Current Report in Form 8-K, dated
January 18, 2000, filed with the SEC on February 2, 2000.
9
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EXHIBIT 2.4
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 (this "Amendment"), is dated as of February 29,
2000, and amends the Agreement and Plan of Merger, dated as of December 30, 1999
(the "Agreement"), made by and among Shanecy Holdings, Inc., a Nevada
corporation with a place of business at 1530 - 625 Howe Street, Vancouver,
British Columbia V6C 2T6 ("SHI"), Shanecy, Inc., a Delaware corporation (to be
know as Inc.ubator Capital, Inc.) with a place of business at 1530 - 625 Howe
Street, Vancouver, British Columbia V6C 2T6 (the "Company" or the "SHI
Shareholder"), Thesseus Holdings, Inc., a Nevada corporation with a place of
business at 318 N. Carson Street, Suite 214, Carson City, Nevada 89701 ("THI"),
and the Thesseus International Asset Fund N.V., a Netherlands Antilles
corporation with a place of business at Zeelandia Office Park, 16 Kaya W.F.G.
(Jombi) Mensing, Curacao, Netherlands Antilles (the "Fund" or the "the THI
Shareholder").
WHEREAS, pursuant to the Agreement THI merged with and into SHI;
WHEREAS, in connection with such merger, the Company agreed to deliver
to the THI shareholder 2,000,000 shares of restricted common stock of the
Company;
WHEREAS, the Company's authorized capital stock is insufficient to
fulfill this obligation;
WHEREAS, the Company intends to file an amended and restated
certificate of incorporation to increase its authorized stock; and
WHEREAS, the parties desire to amend the Agreement to reflect the
intent of the parties as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Amendment and other good and valuable consideration, including
payment of $1,000 to the THI Shareholders, the receipt and sufficiency of which
are hereby acknowledged, the undersigned parties hereby amend the Agreement as
follows:
1. Section 4(r) is hereby amended by deleting the last sentence and replacing
it with the following:
On the business day following effectiveness of an amended and
restated certificate of incorporation of SHI increasing its
authorized stock to a number sufficient to permit issuance of
the Merger Stock, SHI shall deliver the merger shares to THI.
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2. This Amendment shall be effective as of January 18, 2000.
3. Except as otherwise specifically modified hereby, the Agreement shall
remain in full force and effect.
4. This Amendment shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
5. This Amendment may be executed in any number of counterparts, each of which
may be deemed an original and all of which together shall constitute one
and the same instrument.
* * * * *
---------
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
SHANECY, INC. SHANECY HOLDINGS, INC.
By: /s/ Michael Bodnar By: /s/ Jason W. Galanis
-------------------------- ---------------------------
Name: Michael Bodnar Name: Jason W. Galanis
Title: Secretary, Director Title: President, Director
THESSEUS INTERNATIONAL ASSET FUND N.V.
By: /s/ Barry Feiner
-------------------------
Name: Barry Feiner
Title: President, Director
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Financial Statements of
BRUNSWICK CAPITAL PARTNERS, INC.
Years ended December 31, 1999 and 1998
<PAGE>
AUDITORS' REPORT
To the Board of Directors
Brunswick Capital Partners, Inc.
We have audited the balance sheets of Brunswick Capital Partners, Inc. (a
Development Stage Enterprise) as at December 31, 1999 and 1998 and the
statements of operations and deficit and cash flows for the years ended December
31, 1999 and 1998 and the period from incorporation on December 31, 1997 to
December 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 generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform this 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1998 and the period from incorporation on December
31, 1997 to December 31, 1999 in accordance with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 3(a) to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 3(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Vancouver, Canada
March 17, 2000
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 17,002 $ 106,406
Accounts receivable 2,108 90,512
Due from related parties (note 8(a)) 24,089 20,728
Note receivable from related party -- 100,000
- --------------------------------------------------------------------------------------------------------
43,199 317,646
Cash reserve account 25,000 25,000
Investments (note 4):
Performing credit card receivables 725,654 --
Non-performing consumer debt 5,353,030 5,700,790
- --------------------------------------------------------------------------------------------------------
6,078,684 5,700,790
Fixed assets -- 398
- --------------------------------------------------------------------------------------------------------
$ 6,146,883 $ 6,043,834
- --------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 11,990 $ 37,916
Due to related parties (note 8(a)) 6,218 77,239
Promissory note (note 5) 200,000 --
- --------------------------------------------------------------------------------------------------------
218,208 115,155
Note payable to Thesseus International Asset
Fund N.V. (note 6) 689,542 --
- --------------------------------------------------------------------------------------------------------
907,750 115,155
Shareholders' equity:
Share capital (note 7) 910 910
Additional paid-in capital in respect of preferred
shares (note 2) 6,481,113 6,481,113
Deficit accumulated during the development stage (1,242,890) (553,344)
- --------------------------------------------------------------------------------------------------------
5,239,133 5,928,679
Subsequent events (note 9)
- --------------------------------------------------------------------------------------------------------
$ 6,146,883 $ 6,043,834
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Statements of Operations and Deficit
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period from
incorporation on
December 31,
1997 to Year ended Year ended
December 31, December 31, December 31,
1999 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Credit card $ 223,279 $ 223,279 $ --
Interest 26,525 8,314 18,211
Other 7,022 -- 7,022
- ----------------------------------------------------------------------------------------------------------------------------
256,826 231,593 25,233
Expenses:
Accounting and audit 25,670 10,067 15,603
Administration (note 8) 109,706 48,000 61,706
Depreciation 763 398 365
Bad debts 171,520 171,520 --
Consulting 29,303 551 28,752
Credit card services 165,816 165,816 --
Interest 65,439 65,439 --
Legal 89,658 21,743 67,915
Management fees (note 8) 184,920 145,000 39,920
Marketing (note 8) 262,722 135,459 127,263
Payroll 95,426 78,117 17,309
Telephone 8,515 2,949 5,566
Travel 18,302 8,641 9,661
Write-offs of related party balances, net (note 8) 67,439 67,439 --
- ----------------------------------------------------------------------------------------------------------------------------
1,295,199 921,139 374,060
- ----------------------------------------------------------------------------------------------------------------------------
Net loss 1,038,373 689,546 348,827
Capital dividends (note 2) 204,517 -- 204,517
Deficit accumulated during the development
stage, beginning of period -- 553,344 --
- ----------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period $1,242,890 $1,242,890 $ 553,344
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Period from
incorporation on
December 31,
1997 to Year ended Year ended
December 31, December 31, December 31,
1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,038,373) $ (689,546) $ (348,827)
Items not involving cash:
Depreciation 763 398 365
Write-off of note receivable 100,000 100,000 --
Change in non-cash operating working capital:
Decrease (increase) in accounts receivable (2,108) 88,404 (90,512)
Advances from (to) related parties, net (17,871) (74,382) 56,511
Increase (decrease) in accounts payable
and accrued liabilities 11,990 (25,926) 37,916
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (945,599) (601,052) (344,547)
Cash flows from investing activities:
Note receivable (100,000) -- (100,000)
Recoveries of non-performing consumer debt 528,483 347,760 180,723
Purchase of fixed assets (763) -- (763)
Investment in cash reserve account and
performing credit card receivables (61,112) (36,112) (25,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 366,608 311,648 54,960
Cash flows from financing activities:
Promissory note 200,000 200,000 --
Issuance of common shares 510 -- 510
Issuance of preferred shares 600,000 -- 600,000
Capital dividend on preferred shares (204,517) -- (204,517)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 595,993 200,000 395,993
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 17,002 (89,404) 106,406
Cash, beginning of period -- 106,406 --
- ----------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 17,002 $ 17,002 $ 106,406
- ----------------------------------------------------------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Interest paid $ 65,439 $ 65,439 $ --
Note issued for performing credit card receivables 689,542 689,542 --
Issuance of preferred shares for non-performing
consumer debt 5,881,513 -- 5,881,513
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. General:
Brunswick Capital Partners, Inc. ("BCP") was incorporated in South Dakota
on October 13, 1998. Brunswick is a national credit card service company
specializing in the marketing, underwriting and administration of credit
card products and services, and is headquartered in Sioux Falls, South
Dakota. As the Company has not generated significant revenues from these
activities since its incorporation, it is considered for financial
reporting purposes to be a development stage enterprise. Being a
development stage enterprise does not impact the accounting applied.
2. Merger:
As of December 2, 1998 the Company merged with Consumer and Merchant Credit
Services Ltd. ("CMCS"), an affiliated Wyoming corporation that was in the
same business, and the new entity was continued under the name of BCP. The
nature of the merger was a pooling of assets and management expertise of
two start-up ventures, rather than an acquisition, hence the financial
statements of the Company have been prepared using the continuity of
interest method of accounting. Under this method, the financial statements
include the assets, liabilities, deficit and results of operations of
CMCS from the date of its incorporation on December 31, 1997.
CMCS was originally a Yukon Territory corporation, which migrated to
Wyoming in order to facilitate the merger. On December 31, 1997, CMCS
entered into an agreement with Thesseus International Asset Fund N.V. (the
"Fund") to acquire certain non-performing consumer debt from the Fund and
to obtain $600,000 working capital funding. The consideration given was
4,730,605 6% cumulative non-voting convertible preferred shares without par
value. On February 10, 1998, CMCS acquired additional non-performing
consumer debt from the Fund in exchange for a further 2,682,827 preferred
shares. The cumulative preferred shares issued were assigned a value of
$6,481,513 representing a carrying value of $5,881,513 in non-performing
consumer debt and $600,000 in a note receivable.
The 7,413,432 preferred shares then held by the Fund, were convertible into
a 40% voting and equity interest in CMCS at the Fund's discretion. As part
of the merger, the Fund exchanged it's 7,413,432 convertible preferred
shares of CMCS, for 400 voting convertible preferred shares of BCP with a
par value of $1 each. The balance of $6,481,113 is reflected as additional
paid-in capital of BCP. The Fund effectively holds the same position in BCP
as it held in CMCS prior to the merger.
In lieu of a three year participation interest that it previously held with
CMCS, the Fund is now entitled to a 20% interest in all net proceeds, as
defined, from performing credit card receivables that BCP creates from the
non-performing consumer debt that CMCS originally acquired from the Fund
(the "Fund Participation Interest").
During the year ended December 31, 1998, $204,517 was returned to the Fund
by way of a capital dividend.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 2
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies:
(a) Going concern assumption:
These financial statements have been prepared in accordance with United
States generally accepted accounting principles that are applicable to
a going concern, which assume that the Company will attain profitable
operations and generate positive cash flow. As at December 31, 1999 the
Company has a working capital deficiency of $175,009, and during the
1999 fiscal year the Company incurred a loss of $689,546 and it has not
generated profit since incorporation. Future operations of the Company
depend upon the continued financial support of shareholders and common
controlled companies. Management is of the opinion that the going
concern assumption is appropriate because the Company's preferred
shareholder intends to contribute additional financing to support the
Company.
(b) Measurement uncertainty:
Financial statements prepared in conformity with United States
generally accepted accounting principles require management to make
estimates and assumptions that can affect the reported assets and
liabilities or the disclosure of contingencies as at the date of the
balance sheet, or the revenue and expenses recognized in the period.
Assumptions underlying asset valuations are limited by the availability
of reliable data and the uncertainty of predictions concerning future
events. By their nature, asset valuations include a subjective element.
Significant estimates have been made by management with respect to the
timing and amount of collection of future cash flows from performing
credit card receivables and non-performing consumer debt (the
"Portfolios"). Among other things, the estimated future cash flows of
the Portfolios are used to recognize impairment of the investment in
non-performing consumer debt and to determine a provision for losses on
credit card receivables. Actual results could differ from these
estimates, making it reasonably possible that a change in these
estimates could occur within one year. On a periodic basis, management
reviews the estimate of future collections, and it is reasonably
possible that its assessment may change based on actual results and
other factors. The change could be material.
(c) Investments in performing credit card receivables and non-performing
consumer debt:
Performing credit card receivables consist of amounts funded by the
Company for new purchases or advances, accrued interest on new
purchases and advances, and accrued fees, less a provision for losses.
Investments in non-performing consumer debt consist of portfolios of
consumer debt purchased by the Company, which is recorded at cost, less
recoveries. Cost is less than the remaining outstanding balance of
these Portfolios. To the extent that the cost of debt purchased exceeds
the estimated amount of cash expected to be collected, a valuation
allowance would be recognized in the amount of such impairment.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 3
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(d) Revenue recognition:
Revenue from credit cards represents interest and fees on new advances
and purchases made by holders of the Company's credit cards on an
accrual basis.
Under the cost recovery method of accounting, all cash receipts
relating to non-performing consumer debt are applied first to recover
the cost prior to recognizing any revenue. Cash receipts in excess of
the cost of the investment are then recognized as revenue.
(e) Allowance for loan losses:
Bad debts include current period losses and an amount which, in the
judgement of management, is necessary to maintain the allowance for
possible credit losses at a level that reflects known and inherent
risks in the credit card receivables. Credit card accounts are
generally charged off at the end of the month during which they become
contractually 120 days past due, with the exception of bankrupt
accounts, which are charged off immediately upon formal notification of
bankruptcy, and accounts of deceased cardholders without a surviving,
contractually liable individual, which are also charged off immediately
upon notification.
4. Investments in performing credit card receivables and non-performing
consumer debt:
(a) Non-performing consumer debt:
The Company has acquired Portfolios of non-performing consumer debt and
credit card receivables from the Fund at a value related to their
original acquisition cost from independent third parties. These debts
are acquired at a substantial discount from the actual outstanding
balance. The Company's objective is to offer the consumer an
opportunity to settle these debts, typically at a discount, and
transfer the settled amount to a newly issued credit card (see credit
card receivables below).
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 4
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
4. Investments in performing credit card receivables and non-performing
consumer debt (continued):
(b) Credit card receivables:
Upon settlement of the debt, a credit card is issued to the consumer
with the opening balance and credit line equal to the settlement
amount. After making principal payments on the transferred balance, the
customer may use the credit card for new purchases and cash advances up
to their available credit limit, which may be increased from time to
time based on their consecutive payment history.
5. Promissory note:
During 1999, BCP entered into a Loan and Security Agreement with Ticknor
Investment Corporation ("TIC"), a company that has a common shareholder,
and the Fund. Under this agreement, BCP borrowed $200,000 from TIC for
working capital purposes in exchange for a promissory note in that amount,
bearing interest at a rate of 12% per annum, payable monthly in arrears
commencing June 15, 1999. The note is due in full on or before May 14,
2001, although TIC has an option exercisable on or before April 14, 2000 to
demand payment of the outstanding principal in full on May 14, 2000. The
obligation is secured by a senior security interest in all performing
credit card receivables and proceeds therefrom owned by BCP from time to
time, as defined.
TIC is also entitled to a 50% contingent interest in the Net Proceeds, as
defined, of a sale or securitization of performing credit card receivables,
to the maximum aggregate face principal amount of $750,000 (the "TIC
Contingent Interest"). Net Proceeds are after payment of the Fund
Participation Interest (note 2).
During the year, interest expense of $14,000 (1998 - $nil) has been
recorded, of which $2,037 is included in accounts payable as at December
31, 1999.
6. Note payable:
On May 14, 1999, BCP acquired performing credit card receivables with a
face value of $726,482 from the Fund in exchange for a promissory note in
the amount of $689,542. The note bears interest at a rate of 12% per annum,
payable quarterly in arrears commencing August 15, 1999. Principal and any
accrued interest are due in full on or before May 14, 2001 and, in lieu of
cash, payments may be made by delivery of title to performing credit card
receivables, as defined in the promissory note, having a face value equal
to 115% of the obligation to be satisfied. In the event that credit card
receivables delivered are non-performing, 21.75% of the face value of such
receivables will be credited against the obligation to be satisfied, but
under no circumstances may such non-performing receivables comprise more
than 10% of the aggregate face amount of receivables delivered. The
obligation is secured by a junior security interest in all performing
credit cards and proceeds therefrom owned by BCP from time to time.
During the year, interest expense of $48,267 (1998 - $nil) has been
recorded.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 5
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Share capital:
Authorized:
100,000 common shares with a par value of $1 per share
100,000 6% cumulative, voting preferred shares, with a par value of $1
per share, each convertible into 0.85 common shares of the
Company, subject to an anti-dilution provision
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Issued:
<S> <C> <C> <C>
510 common shares $ 510 $ 510
400 preferred shares 400 400
- -------------------------------------------------------------------------------------------------------------------
$ 910 $ 910
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8. Related party transactions:
(a) Amounts due from related parties and due to related parties are
unsecured, non-interest bearing and have no fixed terms of repayment.
(b) Management fees of $145,000 (1998 - $39,920) were paid to individuals
who are directors, officers and shareholders of the Company.
(c) During the year, marketing fees of $121,532 (1998 - $121,899) were paid
to InfoBase Direct Marketing Services, Inc., a company that has the
same preferred shareholder as the Company.
(d) Administration fees of $22,175 (1998 - $58,348) were paid during the
year to Thesseus Services Ltd., a wholly-owned subsidiary of the Fund.
(e) Administration fees of $18,000 (1998 - $nil) were paid during the year
to Ticknor Investment Corporation, a company that has a common
shareholder.
(f) The write-offs of related party balances represent the note receivable
from related party (a shareholder of the Fund) less amounts owing to
the Fund and a subsidiary thereof.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 6
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. Subsequent events:
Subsequent to the year end a number of agreements were signed, which impact
the Company as follows:
(a) The outstanding preferred shares of the Company were acquired by
Shanecy, Inc. from its significant shareholder, the Fund. The Company
amended its articles of incorporation to increase its authorized share
capital to include 2,000,000 preferred shares, with a par value of $1
each, composed of 400 Series A voting preferred shares (the "Series A
Shares"), 1,000,000 Series B non-voting preferred shares (the "Series B
Shares") and such other series of preferred shares as the Board of
Directors determines. The Series A Shares and the Series B Shares shall
be entitled to receive dividends when and as declared by the Board of
Directors. The Series A Shares and the Series B Shares shall be
entitled to preference equal to their original issue price in the event
of any liquidation, dissolution or winding up of the Company, with the
Series A Shares having preference over the Series B Shares.
(b) The currently outstanding preferred shares are to be reclassified as
Series A Shares, and Shanecy, Inc. agreed to purchase from the Company
1,000,000 Series B shares for $1,000,000 cash. If the Series B Shares
are not redeemed by the Company prior to March 1, 2003, then the Series
A Shares and the Series B Shares are thereafter convertible by their
holders into 40% of the outstanding common shares of the Company. If
the Series B Shares are redeemed by the Company prior to March 1, 2003,
then the Series A Shares are thereafter convertible by their holders
into 20% of the outstanding common shares of the Company.
(c) The Company changed its name to eCard Solutions Inc.
(d) As part of the severance agreement with a departing employee, officer
and director, the Company agreed to repurchase his 255 common shares
for $255.
(e) The Company agreed to sell 255 common shares to each of three new
employees, officers and directors at a price of $1 per share. In
accordance with their employment agreements, these individuals are
required to sell, and the Company is required to repurchase, the
employee's common shares at the original issue price if the employee
voluntarily terminates employment or is terminated for cause.
(f) The Company agreed to repay the TIC promissory note (note 5) and all
accrued interest with the proceeds received from the sale of common
shares and Series B Shares disclosed above. The Company also agreed to
pay TIC $50,000 to effect cancellation of the TIC Contingent Interest.
<PAGE>
Financial Statements of
INFOBASE DIRECT MARKETING
SERVICES, INC.
Years ended December 31, 1999 and 1998
<PAGE>
AUDITORS' REPORT
To the Board of Directors
InfoBase Direct Marketing Services, Inc.
We have audited the balance sheets of InfoBase Direct Marketing Services, Inc.
(a Development Stage Enterprise) as at December 31, 1999 and 1998 and the
statements of operations and deficit and cash flows for the year ended December
31, 1999, the period from incorporation on January 29, 1998 to December 31, 1998
and the period from incorporation on January 29, 1998 to December 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 generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform this 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, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the year
ended December 31, 1999, the period from incorporation on January 29, 1998 to
December 31, 1998 and the period from incorporation on January 29, 1998 to
December 31, 1999 in accordance with generally accepted accounting principles in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2(a) to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 2(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Vancouver, Canada
March 17, 2000
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 13,793 $ 16,552
Prepaids and deposits 3,900 7,953
- -----------------------------------------------------------------------------------------------------------
17,693 24,505
Due from related parties (note 3) 25,511 31,096
Fixed assets (note 4) 55,559 73,567
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$ 98,763 $ 129,168
- -----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 26,826 $ 6,971
Due to related parties (note 5) 56,772 15,000
Capital lease obligations - current portion (note 6) 6,490 4,929
- -----------------------------------------------------------------------------------------------------------
90,088 26,900
Capital lease obligations (note 6) 34,402 40,892
Shareholders' equity:
Share capital (note 7) 4,951 4,951
Additional paid-in capital in respect of preferred shares 362,891 209,628
Deficit accumulated during the development stage (393,569) (153,203)
- -----------------------------------------------------------------------------------------------------------
(25,727) 61,376
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$ 98,763 $ 129,168
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Statements of Operations and Deficit
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation incorporation
on January 29, on January 29,
1998 to Year ended 1998 to
December 31, December 31, December 31,
1999 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Marketing fees $243,431 $121,532 $121,899
Interest 871 209 662
- -----------------------------------------------------------------------------------------------------------------
244,302 121,741 122,561
Expenses:
Payroll 337,796 197,298 140,498
Telephone 99,020 71,802 27,218
Depreciation 31,601 22,422 9,179
Rent and utilities 46,096 19,203 26,893
Lease interest 12,883 12,510 373
Travel 36,724 9,726 26,998
Accounting and audit 13,345 7,140 6,205
Legal 22,983 3,963 19,020
Other 37,423 18,043 19,380
- -----------------------------------------------------------------------------------------------------------------
637,871 362,107 275,764
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net loss 393,569 240,366 153,203
Deficit, accumulated during the development stage,
beginning of period -- 153,203 --
- -----------------------------------------------------------------------------------------------------------------
Deficit, accumulated during the development stage,
end of period $393,569 $393,569 $153,203
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation incorporation
on January 29, on January 29,
1998 to Year ended 1998 to
December 31, December 31, December 31,
1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss $(393,569) $(240,366) $(153,203)
Depreciation 31,601 22,422 9,179
Change in non-cash operating working capital:
Decrease (increase) in prepaids and
deposits (3,900) 4,053 (7,953)
Increase in accounts payable and
accrued liabilities 26,826 19,855 6,971
- -----------------------------------------------------------------------------------------------------------------------
(339,042) (194,036) (145,006)
Investing activities:
Due from related parties (25,511) 5,585 (31,096)
Purchase of fixed assets, net of capital lease
obligations (41,260) (4,414) (36,846)
- -----------------------------------------------------------------------------------------------------------------------
(66,771) 1,171 (67,942)
Financing activities:
Due to related parties 56,772 41,772 15,000
Repayment of capital lease obligations (5,008) (4,929) (79)
Issuance for cash of:
Common shares 51 -- 51
Preferred shares 367,791 153,263 214,528
- -----------------------------------------------------------------------------------------------------------------------
419,606 190,106 229,500
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 13,793 (2,759) 16,552
Cash, beginning of period -- 16,552 --
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 13,793 $ 13,793 $ 16,552
- -----------------------------------------------------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Interest paid $ 12,883 $ 12,510 $ 373
Purchase of fixed assets by capital lease
obligations 45,900 -- 45,900
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. General:
InfoBase Direct Marketing Services, Inc. (the "Company") was incorporated
in the State of Nevada on January 29, 1998. The Company is an information
based, technology driven direct marketing company that designs, develops
and implements sophisticated inbound and outbound marketing programs using
the Internet and computerized call management systems for companies
targeting the moderate income customer. As the Company has not generated
significant revenues from these activities since its incorporation, it is
considered for financial reporting purposes to be a development stage
enterprise. Being a development stage enterprise does not impact the
accounting applied. The Company is headquartered in Carlsbad, California.
2. Significant accounting policies:
(a) Going concern assumption:
These financial statements have been prepared in accordance with United
States generally accepted accounting principles that are applicable to
a going concern, which assume that the Company will attain profitable
operations and generate positive cash flow. As at December 31, 1999,
the Company has a working capital deficiency of $72,395 and a capital
deficiency of $25,727. In addition, during the 1999 fiscal year the
Company incurred a loss of $240,366 and it has not generated a profit
since incorporation. Future operation and cash flows of the Company
depend upon continued financial support from shareholders and common
controlled companies. Management is of the opinion that the going
concern assumption is appropriate because the Company's preferred
shareholder intends to contribute additional financing to support the
Company.
(b) Measurement uncertainty:
Financial statements prepared in conformity with United States
generally accepted accounting principles require management to make
estimates and assumptions that can affect the reported assets and
liabilities or the disclosure of contingencies as at the date of the
balance sheet, or the revenues and expenses recognized in the period.
Actual amounts may differ from such estimates.
(c) Fixed assets:
Furniture and equipment is carried at cost and depreciated over seven
years on a double declining balance basis.
Computer hardware and system software is carried at cost and
depreciated over five years on a double declining balance basis.
(d) Revenue recognition:
Marketing fees are recognized as the related services are provided to
the customer.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 2
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Due from related parties:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vianden Capital Management LLC, a company
controlled by a director of the Company's
preferred shareholder $ 25,000 $ 25,000
Other 511 6,096
- -------------------------------------------------------------------------------------------------------------------
$ 25,511 $ 31,096
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Balances due from related parties are unsecured, non-interest bearing and
have no fixed terms of repayment.
4. Fixed assets:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment $ 12,668 $ 4,912 $ 7,756
Computer hardware and system
software 74,492 26,689 47,803
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
$ 87,160 $ 31,601 $ 55,559
- -------------------------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 12,668 $ 1,810 $ 10,858
Computer hardware and system
software 70,078 7,369 62,709
- -------------------------------------------------------------------------------------------------------------------
$ 82,746 $ 9,179 $ 73,567
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 3
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
5. Due to related parties:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASA Internet Services, Inc., a company subject to
significant influence by a director of the Company's
preferred shareholder $ 20,000 $ -
An officer and significant shareholder of a company that
has the same preferred shareholder as the Company 10,000 -
Employee 9,750 15,000
Brunswick Capital Partners, Inc., a company that has the
same preferred shareholder as the Company 4,963 -
Other 12,059 -
- -------------------------------------------------------------------------------------------------------------------
$ 56,772 $ 15,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Balances due to related parties are unsecured, non-interest bearing and
have no fixed terms of repayment.
6. Capital lease obligations:
Future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ - $ 17,235
2000 17,235 17,235
2001 17,235 17,235
2002 17,235 17,235
2003 17,235 17,235
- -------------------------------------------------------------------------------------------------------------------
Total minimum capital lease payments 68,940 86,175
Less amount representing interest at an average
rate of 28% (28,048) (40,354)
- -------------------------------------------------------------------------------------------------------------------
Capital lease obligations - principal 40,892 45,821
Less current portion (6,490) (4,929)
- -------------------------------------------------------------------------------------------------------------------
$ 34,402 $ 40,892
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 4
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Share capital:
Authorized:
25,000 common shares without par value
10,000 6% cumulative, non-voting convertible preferred shares, with a
par value of $1 per share each
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued:
5,100 common shares $ 51 $ 51
4,900 preferred shares 4,900 4,900
- -------------------------------------------------------------------------------------------------------------------
$ 4,951 $ 4,951
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The 4,900 preferred shares were issued in consideration for a funding
commitment of $500,000, subject to the shareholder receiving financing.
Amounts received in excess of the $4,900 par value of those preferred
shares represents additional paid-in capital irrevocably contributed by the
shareholder. The issued and outstanding preferred shares are each
convertible into one common share of the Company, subject to an
anti-dilution provision, assuming that funds totalling $500,000 are
received from the preferred shareholder in respect thereof. The conversion
entitlement is reduced proportionately to the extent that the funds
received are less than $500,000.
8. Related party transactions:
During the year marketing fees of $121,532 (1998 - $121,899) were received
from Brunswick Capital Partners, Inc.
