<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Period ended..........................June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number.....................................0-25521
INC.UBATOR CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 88-0407731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9777 Wilshire Boulevard, Suite 718, Beverly Hills, CA 90212
(Address of principal executive offices) (Zip Code)
(310) 205-6090
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year,
if changed since last report: N/A
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ____ No __X__
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of August 9, 2000, the
issuer had 19,655,000 shares of common stock, $0.001 per value, issued and
outstanding.
Transitional Small Business Disclosure Format Yes ____ No __X__
<PAGE>
INC.UBATOR CAPITAL, INC. AND SUBSIDIARIES
FORM 10-QSB
JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
Page No
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PART I Financial Information
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet............................................................3
Consolidated Statement of Operations..................................................4
Consolidated Statement of Stockholders' Equity.......................................5
Consolidated Statement of Cash Flows..................................................7
Notes to Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations or Plan of Operation..................................................12
PART II Other Information
Item 1: Legal Proceedings....................................................................17
Item 2: Changes in Securities................................................................17
Item 3: Defaults Upon Senior Securities......................................................17
Item 4: Submission of Matters to a Vote of Security Holders..................................17
Item 5: Other Information....................................................................17
Item 6: Exhibits and Reports on Form 8-K.....................................................17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Consolidated Balance Sheet
(Unaudited)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
June 30, March 31,
2000 2000
---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 840 $ 10,694
Receivable from related parties 47,190 24,540
Refundable deposits -- 150,000
Prepaids 316 37,912
---------------------------------------------------------------------------------------------------------
48,346 223,146
Note receivable (note 2) 1,000,000 --
Investments 13,730,107 14,090,281
Intellectual capital 2,000 2,000
---------------------------------------------------------------------------------------------------------
$14,780,453 $14,315,427
---------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 829,736 $ 455,779
Payable to related parties 150,152 183,322
Note payable to eCard Solutions, Inc. (note 9) 750,000 750,000
Notes payable 326,570 390,000
---------------------------------------------------------------------------------------------------------
2,056,458 1,779,101
Shareholder loan (note 3) 1,000,000 --
Stockholders' equity:
Share capital:
Authorized:
150,000,000 common shares with par value of $0.001
25,000,000 preferred shares with par value of $0.001
Issued and fully paid:
19,655,000 (March 31 -- 17,655,000) common shares 19,655 17,655
8,500,000 (March 31 -- nil) Series A, 6.5%, cumulative,
non-redeemable, voting convertible preferred
shares (note 4) 8,500 --
Common shares to be authorized and issued -- 2,000
Preferred shares to be authorized and issued -- 6,592,494
Additional paid-in capital 13,592,866 7,008,872
Deficit accumulated during the development stage (1,897,026) (1,084,695)
---------------------------------------------------------------------------------------------------------
11,723,995 12,536,326
Subsequent events (note 7)
Contingency (note 9)
---------------------------------------------------------------------------------------------------------
$14,780,453 $14,315,427
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Consolidated Statement of Operations
(Unaudited)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Period from
incorporation on Three months Three months
May 31, ended ended
1994 to June 30, June 30,
June 30, 2000 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Interest $ 1,886 $ 1,306 $ -
Foreign exchange 1,494 1,494 -
----------------------------------------------------------------------------------------------------------------
3,380 2,800 -
Expenses:
Accounting and audit 106,500 34,000 -
Administration fees to Thesseus Services Inc. 130,765 60,000 -
Consulting 587,903 153,565 -
Credit card fees and expenses 45,055 15,611 -
Equipment leasing 833 833 -
Interest 7,514 7,514 -
Legal 548,083 183,195 -
Marketing 19,703 11,069 -
Miscellaneous 13,228 5,648 30
Payroll 88,314 50,329 -
Printing 22,848 4,016 -
Regulatory filings 8,806 5,240 -
Rent 18,494 18,494 -
Stock transfer fees 5,666 - -
Telephone 10,716 6,646 -
Travel 18,339 10,172 -
----------------------------------------------------------------------------------------------------------------
1,632,767 566,332 30
----------------------------------------------------------------------------------------------------------------
Net loss before equity losses 1,629,387 563,532 30
Equity losses (note 5) 248,799 248,799 -
----------------------------------------------------------------------------------------------------------------
Net loss $1,878,186 $812,331 $ 30
----------------------------------------------------------------------------------------------------------------
Basic loss per share $ 0.20 $ 0.04 $0.00
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Expressed in U.S. Dollars)
Period from incorporation on May 31, 1994 to June 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Preferred Common
shares to be shares to be Additional
Common Par Preferred Par authorized authorized paid-in Accumulated
shares value shares value and issued and issued capital deficit
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
June 14, 1994:
Shares issued for services 100,000 1 - - - - 99 -
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 100,000 1 - - - - 99 -
July 31, 1995:
Shares issued 37,000 - - - - - 3,700 -
Net loss, year ended March 31, 1996 - - - - - - - (100)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 137,000 1 - - - - 3,799 (100)
Net loss, year ended March 31, 1997 - - - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 137,000 1 - - - - 3,799 (100)
December 2, 1997:
Acquisition of equity of Thesseus
in Eikos - - - - 7,177,500* - - -
February 28, 1998:
Shares issued for services 100,000 1 - - - - 99 -
February 28, 1998:
Forward stock split 45:1 10,428,000 105 - - - - (105) -
Net loss, year ended March 31, 1998 - - - - - - - (100)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 10,665,000 107 7,177,500 3,793 (200)
September 30, 1998:
Eikos distributions - - - - (370,462)* - - -
October 7, 1998:
Change par value from
$0.00001 to $0.001 - 10,558 - - - - (3,793) (6,765)
Net loss, year ended March 31, 1999 - - - - - - - (3,578)
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 10,665,000 10,665 - - 6,807,038 - - (10,543)
September 14, 1999:
Cancellation of shares (9,000,000) (9,000) - - - - 9,000 -
September 16, 1999:
Forward share split 2:1 1,665,000 1,665 - - - - - (1,665)
September 28, 1999:
Forward share split 1.5:1 1,665,000 1,665 - - - - - (1,665)
November 10, 1999:
Eikos distributions - - - - (214,544)* - - -
November 11, 1999:
Shares issued on acquisition of
[email protected], Inc. and
Eikos Acquisition Limited 3,500,000 3,500 - - - - - -
December 17, 1999:
Shares issued - 50,000 for cash,
200,000 for services 250,000 250 - - - - 124,750 -
December 30, 1999:
Share dividend 8,745,000 8,745 - - - - - (8,745)
January 10, 2000:
Shares issued for services 40,000 40 - - - - 19,960 -
</TABLE>
<PAGE>
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Period from incorporation on May 31, 1994 to June 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Preferred Common
shares to be shares to be Additional
Common Par Preferred Par authorized authorized paid-in Accumulated
shares value shares value and issued and issued capital deficit
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
January 18, 2000:
Acquisition of investments in
eCard Solutions, Inc. (formerly
Brunswick Capital Partners, Inc.)
and InfoBase Direct Marketing
Services, Inc. (2,000,000 shares) - - - - - 2,000 6,642,787 -
January 24, 2000:
Payment for share options - - - - - - 150,000 -
February 14, 2000:
Shares issued for services 125,000 125 - - - - 62,375 -
Net loss, year ended
March 31, 2000 - - - - - - - (1,062,077)
---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 17,655,000 17,655 - - 6,592,494 2,000 7,008,872 (1,084,695)
Shares issued to Thesseus
International Asset Fund for
Eikos Acquisition,eCard and
InfoBase 2,000,000 2,000 8,500,000 8,500 (6,592,494) (2,000) 6,583,994 -
Net loss, three months ended
June 30, 2000 - - - - - - (812,331)
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 19,655,000 19,655 8,500,000 8,500 - - 13,592,866 (1,897,026)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The transactions prior to November 11, 1999 relate to the Company's
acquisition of the equity of Thesseus in Eikos, and distributions from Eikos
paid to Thesseus on the Company's behalf.
<PAGE>
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
(Unaudited)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Period from
incorporation on Three months Three months
May 31, ended ended
1994 to June 30, June 30,
June 30, 2000 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,878,186) $ (812,331) $(30)
Items not involving cash:
Common shares issued for services 182,700 - -
Payment of expense for stock options 150,000 - -
Equity losses 248,799 248,799 -
Changes in non-cash operating working capital:
Decrease (increase) in prepaids (316) 37,596 -
Decrease in refundable deposits - 150,000 -
Increase in accounts payable and
accrued liabilities 829,736 373,957 -
----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (467,267) (1,979) (30)
Cash flows from investing activities:
Note receivable (1,000,000) (1,000,000) -
Investment in eCard Solutions, Inc. (250,000) - -
Distributions from Eikos Acquisition Limited 259,875 111,375 -
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (990,125) (888,625) -
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Notes payable 326,570 (63,430) -
Issuance of common shares 28,700 - -
Shareholder loan 1,000,000 1,000,000 -
Advances from related parties, net 102,962 (55,820) -
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,458,232 880,750 -
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 840 (9,854) (30)
Cash, beginning of period - 10,694 122
----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 840 $ 840 $ 92
----------------------------------------------------------------------------------------------------------------
</TABLE>
Supplementary information (note 8)
See accompanying notes to consolidated financial statements.
<PAGE>
INC.UBATOR CAPITAL, INC.
(Formerly Shanecy, Inc.)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended June 30, 2000
--------------------------------------------------------------------------------
1. Significant accounting policies:
(a) Going-concern assumption:
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States that are
applicable to a going concern, which assume that the Company will
continue its operations and be able to satisfy its obligations as they
come due through the next year. As at June 30, 2000, the Company has a
working capital deficiency of $2,008,112, incurred a loss during the
first quarter of $812,331 and has not generated a profit since
incorporation. Future operations of the Company depend upon the continued
financial support of stockholders and common controlled companies.
Management is of the opinion that the going concern assumption is
appropriate and is currently evaluating different alternatives to
increase the Company's capital.
(b) Earnings (loss) per share:
Basic per share amounts are calculated based on the weighted average
number of shares outstanding and give retroactive effect to the stock
splits, stock dividend and share cancellation to the beginning of the
periods presented. Net income (loss) per share ("EPS") is computed using
the weighted average number of common shares outstanding during the
period of 19,655,000 (1999 - 9,990,000; from incorporation on May 31,
1994 to June 30, 2000 - 9,456,641). Fully diluted earnings (loss) per
share has not been disclosed as the effect of the exercise of options,
warrants and the conversion of convertible preferred shares would be
anti-dilutive.
(c) Comparative figures:
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.
2. Note receivable:
On June 2, 2000, the Company advanced $1.0 million to ThemeWare Corporation
("ThemeWare") pursuant to the acquisition term sheet signed on May 22, 2000
(note 7(a)). In return, ThemeWare executed a promissory note in favour of the
Company. The note bears interest at 8%, with both principal and interest
payable on demand. The note is to be converted to equity on closing of the
acquisition.
3. Shareholder loan:
On May 30, 2000, the Company received a loan from a shareholder who is a
brother of a director of the Company (note (7(b)). The loan bears interest at
8% payable quarterly in arrears commencing September 1, 2000 and principal is
payable in full on July 1, 2001.
<PAGE>
4. Preferred shares:
At June 30, 2000, the series A convertible preferred shares have undeclared
dividends of $46,042.
5. Equity losses:
eCard Solutions, Inc. ("eCard") incurred losses of $139,142 for the three
months ended March 31, 2000. This amount, along with amortization of the
excess of cost over net assets acquired for the period of $25,946, is
reflected in equity losses in the Consolidated Statement of Operations.
Commencing April 1, 2000, a total excess of $1,037,863 is being amortized
over ten years.
InfoBase Direct Marketing Services, Inc. ("InfoBase") incurred losses of
$74,516 for the three months ended March 31, 2000. This amount, along with
amortization of the excess of cost over net assets acquired for the period of
$9,195, is reflected in equity losses in the Consolidated Statement of
Operations. Commencing April 1, 2000, a total excess of $367,791 is being
amortized over ten years.
6. Stock options and warrants:
(a) Stock Option Plan:
During fiscal 2000, the 1999 Stock Option Plan (the "Plan") was approved
by the stockholders, whereby common shares of the Company may be issued
to designated employees, officers and directors pursuant to the Plan, as
approved by the Compensation Committee or the Board of Directors. Subject
to stockholder approval of an increase in the authorized share capital of
the Company, as at June 30, 2000, the Company has granted, pursuant to
the Plan, options to purchase an aggregate of 10,500,000 common shares to
certain officers and directors at exercise prices of between $0.04 and
$2.00 per share. On April 24, 2000, the stockholders approved an increase
in the authorized share capital of the Company, which was formalized with
the filing of an amended and restated certificate of incorporation on
June 1, 2000.
The following table summarizes the status of options outstanding under
the Plan:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Stock options Weighted
outstanding average price
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding, March 31, 2000 10,500,000 0.42
Granted during the three months ended June 30, 2000 - -
Exercised during the three months ended June 30, 2000 - -
Forfeited during the three months ended June 30, 2000 - -
-------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2000 10,500,000 $ 0.42
-------------------------------------------------------------------------------------------------------
Exercisable, June 30, 2000 10,500,000
-------------------------------------------------------------------------------------------------------
The following table provides details of options outstanding at June 30, 2000:
-------------------------------------------------------------------------------------------------------
Number Number
outstanding Weighted Weighted exercisable Weighted
Range of June 30, average life average June 30, average
exercise price 2000 remaining price 2000 price
-------------------------------------------------------------------------------------------------------
$0.04 to $0.045 8,500,000 4.4 $0.045 8,500,000 $0.045
$2.00 2,000,000 9.3 2.00 2,000,000 2.00
-------------------------------------------------------------------------------------------------------
10,500,000 5.3 $ 0.42 10,500,000 $ 0.42
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
6. Stock options and warrants (continued):
The Plan provides that the Compensation Committee or the Board of Directors
may determine vesting or exercisability of any option granted, but, if not
otherwise determined, options will vest and be exercisable at the date of
grant. The 10,500,000 options granted will terminate on the earlier of five
or ten years after the date of issuance or ninety days after the optionee
ceases to be affiliated with the Company.
(b) Other options:
The Company has issued options to an unrelated party, which are not
covered by the 1999 Stock Option Plan, for consideration of $150,000.
These options were granted on January 24, 2000, are for 500,000 common
shares, have an exercise price of $7.00 and are exercisable for two years
from the date of grant.
(c) Warrants to purchase shares:
On February 4, 2000, the Company signed an Investment Banking Agreement
with Donner Corp. Pursuant to this agreement the Company issued, on
February 8, 2000, 12,500 warrants to purchase common shares at $12.00 per
share. The agreement also stipulated the issuance of three additional
tranches as follows:
o 12,500 warrants exercisable at $14.00, to be issued immediately after
the first day that the Company's Common Stock closes at or above
$25.00; and
o 12,500 warrants exercisable at $16.00, to be issued immediately after
the first day that the Company's Common Stock closes at or above
$35.00; and
o 12,500 warrants exercisable at $18.00, to be issued immediately after
the first day that the Company's Common Stock closes at or above
$45.00.
All of the warrants covered by this agreement are no longer exercisable
after November 1, 2003.
On May 12, 2000, in consideration for obtaining a listing on the
Frankfurt Stock Exchange and for ongoing long-term market making
sponsorship services, the Company issued Berliner Freiverkehr warrants to
purchase 200,000 shares of its Common Stock, with an exercise price of
$7.00 per share, for a two year term commencing on May 12, 2000.
On May 16, 2000, the Company appointed Sabre Communications, Inc. as a
management advisor with responsibility for investor relations, and issued
them 200,000 cashless warrants bearing a strike price of $4.00 per share
exercisable for two years after November 15, 2000.
On May 22, 2000, the Company engaged Quadrant Investment Bankers, Inc. as
financial advisor and placement agent and issued them warrants to
purchase 100,000 shares at $4.00 per share, exercisable for two years
after November 22, 2000.
7. Subsequent events:
(a) On May 22, 2000, the Company entered into a term sheet to acquire all of
the outstanding capital stock of ThemeWare in exchange for $135.0 million
of the Company's common stock and a commitment to invest a total of $5.0
million in ThemeWare, of which $1.0 million was invested on signing the
term sheet. A further $1.0 million is to be invested on the signing of
definitive agreements, which is to take place in August, 2000, and $1.0
million is to be invested upon the Securities and Exchange Commission's
declaration that the registration statement on Form S-4 concerning this
transaction is effective. The final $2.0 million is to be invested within
twelve months of the closing of the transaction. Related to this proposed
transaction, effective June 27, 2000, the Company signed a financing
commitment with a third party investor who has agreed, subject to certain
conditions, to invest $5,000,000 in the Company to facilitate completion
of the ThemeWare acquisition.
<PAGE>
7. Subsequent events (continued):
(b) In order to fund the initial payment required in respect of the ThemeWare
acquisition described above, the Company received a $1,000,000 loan from
a shareholder. Subsequently, on July 7, 2000, the shareholder agreed to
convert this loan into 1,000,000 non-voting, non-redeemable, Series B, 8%
cumulative preferred shares in return for 50,000 two year warrants each
entitling the holder to acquire one common share for $2.50. The preferred
shares are convertible into 250,000 common shares, subject to
anti-dilution provisions.
8. Supplementary cash flow information:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Period from
incorporation on Three months Three months
May 31, 1994 ended ended
to June 30, June 30, June 30,
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-cash investing and financing activities:
Common shares issued to unrelated
parties on acquisition of CASA $ 2,000 $ - $ -
Common shares issued to Thesseus on
acquisition of EAL 1,500 - -
Eikos distributions received by Thesseus
on behalf of the Company 585,006 - -
Preferred shares authorized and issued to
Thesseus on acquisition of EAL 6,592,494 - -
Common shares issued for services * 182,500 - -
Common shares authorized and
issued to Thesseus on acquisition of
investments in eCard and InfoBase 6,644,787 - -
Note payable to eCard for investment
in Series B preferred shares (750,000) - -
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of cancellation.
9. Contingency:
On May 24, 2000, eCard delivered the Company a notice of default on its
obligation. As at June 30, 2000, none of the remaining instalment payments on
the note have been made and the shares and initial investment are subject to
forfeiture under the Company's agreement with eCard, although management has
indicated an intention, on the part of both parties, to renegotiate the terms
of the Company's investment commitment. If Inc.ubator's negotiations with
eCard are not successful, eCard could retain the $250,000 already paid and
Inc.ubator could be required to return all of the Series B preferred shares
and write-off that investment net of the unpaid balance of the note.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations or Plan of Operation
Forward Looking Statements
When used in this Form 10-QSB, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"projected," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to, lack of operating history, need for additional
financing and history of losses. Such factors, which are discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, could affect Inc.ubator Capital, Inc.'s ("Inc.ubator" or the
"Company") financial performance and could cause the Company's actual results
for future periods to differ materially from any opinion or statements expressed
herein with respect to future periods. As a result, the Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
General
The Company has a limited operating history upon which to base an
evaluation of its business. The Company's business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets. In addition, because the Company
acquires significant interests in companies which concentrate on businesses
using the Internet to provide products and services to moderate income
consumers, many of which generate net losses, it is experiencing, and expects to
continue to experience, significant volatility in its operating results. The
Company does not know when or if it will report net income, and it expects that
it will report net losses in many quarters for the foreseeable future.
The Company intends to evaluate, on an ongoing basis, the carrying
value of its ownership interests in and advances to the companies it invested in
("Network Companies") for possible impairment, based on achievement of business
plan objectives, the financial condition and prospects of the Network Companies
and other relevant factors. Such factors may be financial or non-financial in
nature.
Effect of Accounting Methods
The various interests that Inc.ubator acquires in its Network Companies
are accounted for under the equity, consolidation or cost method. The applicable
accounting method is generally determined based on the Company's voting interest
in the Network Companies. In the future, the presentation of the Company's
financial statements may differ from period to period, primarily due to whether
or not it applies the consolidation method or the equity method. This could
result if its voting interest in a company either rises above or drops below
50%. See Note 2 (b) of the notes to the Company's audited Consolidated Financial
Statements previously filed in the Form 10K-SB for a detailed discussion of
these accounting methods.
Results of Operations for the Quarter Ended June 30, 2000
The fiscal quarter of the Company ended June 30, 2000 continues to
reflect start-up results only as Inc.ubator began operations November 11, 1999,
a period of approximately eight months.
<PAGE>
The Company's reported results of operations include all amounts for
the parent company, Inc.ubator, and its wholly-owned subsidiary companies,
[email protected], Inc. ("CASA"), Eikos Acquisition Limited, ("EAL"), and Shanecy
Holdings, Inc. ("SHI"). All three subsidiaries were either formed or acquired
recently and/or have limited operations. As such, their operating expenses were
not a material part of the operating expenses of the consolidated entity for the
three months ended June 30, 2000 or since the Company began operations. SHI does
however account for its investments in InfoBase Direct Marketing Services, Inc.
("InfoBase") and eCard Solutions, Inc. ("eCard Solutions") on the equity basis
and recorded total equity losses for the three months ended June 30, 2000 of
$248,799, which represents 30% of the loss for the consolidated entity. Since
the Company commenced its new business strategy in November 1999, comparisons to
the same period of the prior year are not relevant.
During the quarter ended June 30, 2000, the Company's focus has been on
completing the definitive agreements relating to the acquisition of ThemeWare,
the Company's first major acquisition. In addition, management has continued to
explore various alternatives to raise capital. As a result, costs of operation
for the period continued to center around legal, consulting, audit and
administrative matters. The Company reported a net operating loss of $812,000,
or $0.04 per share, for the quarter ended June 30, 2000.
Revenue. The Company reported total revenue of $2,800 for the quarter
ended June 30, 2000, which represents interest from funds on deposit and a
nominal foreign exchange gain. As reflected in Note 2 (d) of the Company's
audited Consolidated Financial Statements included in the Form 10-KSB, the
Company accounts for payments received from Eikos Management LLC ("Eikos") under
the Mutual Business Development Agreement (the "MBDA") on a cost recovery basis
and hence no revenue will be recognized until the carrying value of the asset
has been reduced to zero.
Expenses. The Company had expenses of $566,000 for the quarter ended
June 30, 2000 of which consulting and legal fees represented $154,000 and
$183,000, respectively. The Company's expenses related to the commencement of
operations as a public company, the acquisitions of the companies discussed
herein and the preparation of securities documents. Expenses also included audit
and accounting expenses of $34,000 and an administration fee payable to Thesseus
Services Ltd., a subsidiary of Thesseus International Asset Fund NV
("Thesseus"), of $60,000.
Financial Condition
At June 30, 2000, the Company's assets were comprised primarily of the
investments and intellectual property described below.
CASA and Eikos Acquisition. On November 11, 1999, the Company acquired
100% of CASA from K. Washington-Galanis Investments, LLC and 100% of the stock
of EAL from Thesseus. The carrying value of assets acquired in the transactions
is $6,336,119 as of June 30, 2000 and is reflected as "Investments" and
"Intellectual capital" in the consolidated balance sheet. See Note 4 of the
audited Consolidated Financial Statements for the year ended March 31, 2000
previously filed in Form 10K-SB, for a description of these investments.
eCard Solutions and InfoBase Acquisition. On January 18, 2000, the
Company acquired interests in eCard Solutions and InfoBase Direct Marketing from
Thesseus, a related party. The investments were transferred at book values
<PAGE>
previously recorded by Thesseus totaling $6,644,787 and are reflected in
"Investments" in the consolidated balance sheet attached, net of equity losses
of $248,799 reflected in the statement of operations for the quarter.
On March 13, 2000, eCard Solutions created two separate series of
preferred shares. The then existing 400 preferred shares acquired were
reclassified as Series A and have a total redemption value equal to the
$6,276,996 carrying value acquired. Additionally, the Company committed to
invest $1.0 million in eCard Solutions through the acquisition of one million
Series B preferred shares in eCard Solutions. Payment was to be made in four
equal installments of $250,000 on March 13, April 13, May 12 and June 12, 2000.
At March 31, 2000, $250,000 had been paid and the balance of $750,000 was
reflected as a note payable in the consolidated financial statements. Inc.ubator
has determined that the interests of its shareholders would best be served by
attempting to restructure this transaction so as to eliminate any future
payments for the Series B preferred stock. As of June 30, 2000, Inc.ubator and
eCard Solutions were in negotiations but had not yet reached formal agreement on
this matter. If Inc.ubator's negotiations with eCard Solutions are unsuccessful,
eCard Solutions could retain the $250,000 already paid and Inc.ubator could be
required to return all of the Series B preferred shares acquired from eCard
Solutions, which would have a negative impact on the Company's financial
condition and results of operations.
The Company had a working capital deficiency of $2.0 million and an
accumulated deficit of $1.9 million at June 30, 2000.
Liquidity and Capital Resources
A major objective of Inc.ubator is to raise sufficient capital to fund
growth, fulfill Inc.ubator's business strategy and meet all cash requirements
with cash and short term equivalents.
The primary source of cash to date has been loans and advances from
related parties. The primary use of cash has been for general and administrative
expenses, the initial installment of $250,000 made to e-Card Solutions to fund
the partial payment for the Series B preferred shares and the $1.0 million
payment made to ThemeWare on the signing of the Term Sheet for that acquisition.
At June 30, 2000, Inc.ubator had a cash balance of approximately $1,000.
Inc.ubator expects negative cash flows from operations to continue for the
foreseeable future, as it continues to develop and implement its business
strategy.
During the quarter ended June 30, 2000, the Company's operations were
financed primarily through the return of a refundable deposit ($150,000)
short-term accounts payable ($374,000) and cash flow from the Company's 49.5%
interest in Eikos, which the Company holds through its wholly-owed subsidiary,
EAL ($111,375). Through this investment, the Company has to date been eligible
to receive up to $37,125 per month pursuant to the terms of the MBDA. The $1.0
million payment to ThemeWare was financed by a loan from a stockholder who is
the brother of a director of the Company. The loan was subsequently converted to
equity in July 2000. Reference is made to note 10 (f) of the Consolidated
Financial Statements of the Company for its year ended March 31, 2000 included
in the Form 10-KSB for a more detailed description of this transaction. The
Company has used share for share exchanges in connection with its acquisitions.
During fiscal 2000, the Company issued 4.0 million shares (as adjusted for the
stock split) of common stock to an entity controlled by two directors in
connection with the acquisition of CASA. The Company also agreed to issue 5.0
million shares (as adjusted for the stock split) of its common stock to Thesseus
in connection with the acquisition of EAL, eCard Solutions and InfoBase.
<PAGE>
At June 30, 2000, the Company had a working capital deficit of
approximately $2.0 million. The Company anticipates that it will require
substantial additional financing to fund its ongoing operations and has secured
commitments for a portion of those requirements. Further, the Company is
currently exploring various options to raise additional capital. The Company
currently anticipates it will need to raise approximately $30.0 million over the
next 12 to 18 months in order to fund its obligations to ThemeWare, to implement
its business strategy, including the funding of further acquisitions, and to
fund operating expenses. There can be no assurance, however, that additional
funding will be available or, if available, that it will be available on terms
acceptable to the Company. If adequate funds are not available, it may not be
able to continue. There can be no assurance that the Company will be able to
raise additional cash if its cash resources are exhausted. The Company's ability
to arrange such financing in the future will depend in part upon the prevailing
capital market conditions as well as the Company's business performance.
Current Initiatives
On May 22, 2000, the Company entered into a Term Sheet to acquire all
of the outstanding capital stock of ThemeWare and an Interim Operating Agreement
under which Inc.ubator assumed management oversight of ThemeWare. In connection
with the Interim Operating Agreement, Inc.ubator has entered into Voting
Agreements with a majority of the outstanding shareholders of ThemeWare, whereby
the shareholders have agreed to vote their shares in favor of a proposed merger
of Inc.ubator and ThemeWare pursuant to the terms agreed to by the parties in a
term sheet.
ThemeWare is a branded consumer and small business Internet company
comprised of Internet Connectivity/Hosting, Application Services, Merchant
Services and a Portal that acts as a hub/entry point for customers and their web
experience. ThemeWare's principal customer acquisition product is The Internet
Tool Box(TM), an innovative multi-media kit that provides an array of software
and tutorials that teaches the novice everything they need to know about
accessing and using the Internet. While there are similarities with the CDs,
etc. offered by Internet Service Providers to acquire subscribers, the Internet
Tool Box(TM) offers a much more comprehensive set of multi-media materials that
not only eases the users' entry onto the Internet but greatly enhances their
ability to more quickly and effectively use the Internet as well.
Upon completion of the ThemeWare acquisition, together with its
existing Network Companies, Incubator intends to offer consumers and small
businesses various bundled packages of services and technology which include
access devices, support services, affinity discounts on non-discretionary
purchases, as well as offering important financial services through
Visa/MasterCard and other financing programs Inc.ubator is developing.
Partnered with CASA, ThemeWare will form the main engine of the
Inc.ubator network. The staffs of Inc.ubator and ThemeWare are already hard at
work on ways in which to improve the effectiveness of ThemeWare's operations and
achieve improved financial efficiencies. With the ability to share technology
and Internet portals with ThemeWare, management believes CASA will be positioned
to move forward with its plans in a more timely and cost effective manner than
originally anticipated. Further, the ThemeWare acquisition may provide a
leveragable platform to market the Company's other Internet-based financial
services products and lifestyle services.
ThemeWare's experience in assisting small business owners to compete on
the Web can be leveraged into providing a wide array of continuing support
<PAGE>
services. Incubator considers this to be an important capability as it believes
that becoming a true value added Support Portal can enable ThemeWare and
Inc.ubator's other Network Companies to create stronger client-vendor
relationships and the enhanced potential for generating multiple recurring
revenue streams.
Inc.ubator believes that the ThemeWare acquisition, if and when
completed, will benefit Inc.ubator and its shareholders because the acquisition
will:
o Increase its consolidated revenues;
o Enable the Network Companies to take advantage of certain operating
and other synergies;
o Improve its ability to raise capital by providing an established
revenue base and significantly greater technological resources;
o Increase product offerings which will potentially enable Inc.ubator
to more rapidly implement its business plan;
o Provide potential cross marketing opportunities; and
o Acquire technical expertise, which would allow Inc.ubator to more
quickly develop the CASA website and accelerate the growth of eCard
Solutions and InfoBase.
There can however be no assurance as to whether or when the ThemeWare
acquisition will be completed.
Under the terms of the transaction as currently proposed, ThemeWare's
shareholders will receive $135.0 million of Inc.ubator's stock for their shares.
Inc.ubator anticipates that revenues will increase as a result of ThemeWare's
revenues which were $19.7 million for the twelve months ended March 31, 2000
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Change in securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed with this Form 10-Q.
Exhibit No. Description
----------- -----------
10.1 Loan Agreement between Exeter Partners
LLC and Inc.ubator Capital, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed the following Current Reports on Form 8-K during
the quarter ended June 30, 2000:
1. Current Report on Form 8-K filed on June 7, 2000 to report
an amendment to the Company's Amended and Restated Articles of
Incorporation to change the Company's name to Inc.ubator Capital,
Inc. and the Company's entering into a term sheet and operating
agreement with ThemeWare Corporation.
2. Amendment to Current Report on Form 8-K/A filed on April 5,
2000 to provide audited financial statements of two recently
acquired companies, eCard Solutions, Inc. (formerly Brunswick
Capital Partners, Inc.) and InfoBase Direct Marketing Services, Inc.
<PAGE>
Signature
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INC.UBATOR CAPITAL, INC.
Dated: August 14, 2000 By: /s/ Michael Bodnar
-------------------------
Michael Bodnar
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- --------------------------------------
10.1 Loan Agreement between Exeter Partners
LLC and Inc.ubator Capital, Inc.
27 Financial Data Schedule
