SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-----------------------------
Commission file number 0-27343
INFOCAST CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 84-1460887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Richmond Street West
Suite 902
Toronto, Ontario M5H 3W4
(416) 867-1681
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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 /X/ Yes / / No
The number of shares outstanding of each of the issuer's classes of common stock
as June 30, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $0.001 par value 24,571,336
<PAGE>
INFOCAST CORPORATION
INDEX
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED BALANCE SHEETS
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
As of As of
June 30, 2000 March 31, 2000
Unaudited [Note 1]
ASSETS
Current
Cash and cash equivalents 3,054,734 3,637,931
Marketable equity investment [note 3] 1,625,000 3,900,000
Accounts receivable 273,194 275,283
Due from i360 Inc 145,137
Prepaid expenses and other 323,251 324,835
----------- -----------
Total current assets 5,421,316 8,138,049
----------- -----------
Joint venture investment [note 7] 84,699
Deferred acquisition cost 965,635
Deferred Convertible Debt issuance costs [note 6] 1,339,668 604,583
Capital assets, net 3,227,171 3,152,983
Goodwill, net 4,520,065 4,812,380
Distribution and licensing rights, net [note 4] 2,925,000 2,975,000
Intellectual property, net 13,972,003 14,886,486
----------- -----------
32,455,557 34,569,481
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,177,354 1,834,930
Current portion of obligations under capital leases 486,501 479,813
Total current liabilities 1,663,855 2,314,743
Long-term
Convertible debenture [note 6] 6,960,000 3,500,000
Obligations under capital leases 678,564 802,836
Deferred income taxes 5,309,395 5,656,895
----------- -----------
Total long-term liabilities 12,947,959 9,959,731
----------- -----------
Total liabilities 14,611,814 12,274,474
----------- -----------
Stockholders' equity
Common stock (100,000,000 authorized and 24,571,336 issued
and outstanding at June 30, 2000 , 24,571,336 at March 31, 2000) 23,071 23,071
Additional paid-in capital 59,248,522 57,933,723
Deferred compensation (735,836) (1,677,491)
Warrants 2,253,875 1,007,875
Accumulated other comprehensive loss (2,588,281) (237,033)
Accumulated development stage deficit (40,357,608) (34,755,138)
----------- -----------
Total stockholders' equity 17,843,743 22,295,007
----------- -----------
32,455,557 34,569,481
=========== ===========
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
[U.S. dollars, U.S. GAAP]
Unaudited
Cumulative
Three months Three months from
ended ended inception to
June 30, 2000 June 30, 1999 June 30, 2000
REVENUE
<S> <C> <C> <C>
Consulting income 72,625 171,982
Revenue Distance Learning -- 39,712
Hosting income 43,047 94,407
Miscellaneous income 21,465 -- 183,744
--------- -------------- ----------
137,137 -- 489,845
--------- -------------- ----------
EXPENSES
General, administrative and selling, excluding stock option compensation 2,161,796 1,936,815 10,611,514
Stock option compensation [note 5] 743,354 5,829,647 16,352,200
Research and development, excluding stock option compensation 119,132 718,657 5,607,748
Interest and loan fees [note 6] 1,599,609 -- 3,536,653
Amortization 1,311,778 645,873 5,631,102
Depreciation 205,766 8,962 710,968
--------- -------------- ----------
6,141,435 9,139,954 42,450,185
--------- -------------- ----------
Loss from operations before the following (6,004,298) (9,139,954) (41,960,340)
Interest income 54,328 23,157 190,863
Equity in loss of joint venture [note 12] -- -- (164,736)
--------- -------------- ----------
Net loss before income taxes (5,949,970) (9,116,797) (41,934,213)
Deferred income taxes (347,500) (186,605) (1,576,605)
--------- -------------- ----------
Net loss for the period (5,602,470) (8,930,192) (40,357,608)
Unrealized loss on marketable equity investment (2,275,000) -- (2,562,500)
Translation adjustment (76,248) (28,964) (25,781)
--------- -------------- ----------
Comprehensive loss for the period (7,953,718) (8,959,156) (42,945,889)
========= ============== ==========
Weighted average number of shares outstanding 24,571,333 20,035,410 11,225,129
========= ============== ==========
Basic and diluted loss per share $ (0.23) $ (0.45) $ (3.60)
========= ============== ==========
</TABLE>
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOW
[U.S. dollars, U.S. GAAP]
Unaudited
<TABLE>
<CAPTION>
Three months Three months Cumulative
ended ended inception to
June 30, June 30, June 30,
2000 1999 2000
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss for the period (5,602,470) (8,930,192) (40,357,608)
Add (deduct) items not affecting cash
Stock option compensation 743,354 5,829,647 16,352,200
Common stock issued for services -- 157,923 450,000
Warrants issued for services 129,100 449,998 910,175
Common stock issued to Applied Courseware Technology (A.C.T) Inc. -- -- 1,337,500
Write-off in-process research & development -- 19,000 19,000
Write-off Applied Courseware Technology (A.C.T) Inc. loan -- -- 98,685
Non-cash interest expense 1,455,933 3,369,415
Equity in loss of joint venture -- -- 164,736
Deferred income taxes (347,500) (186,605) (1,576,605)
Amortization 1,311,778 645,873 5,631,102
Depreciation 205,766 8,962 710,968
---------------------------------------------------
(2,104,039) (2,005,394) (12,890,432)
---------------------------------------------------
Changes in non-cash working capital balances
Accounts receivable 2,089 (36,340) (214,698)
Prepaid expenses and other 1,584 (564,096) (321,784)
Accounts payable and accrued liabilities (657,576) (60,982) 930,887
Due from InfoCast [the acquired entity] prior to acquisition -- -- (25,020)
---------------------------------------------------
Cash used in operating activities (2,757,942) (2,666,812) (12,521,047)
---------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (286,371) (228,980) (2,428,156)
Distribution rights -- (475,000) (2,975,000)
Due from Homebase Work Solutions Ltd. -- -- (99,529)
Due from i360 Inc. (145,137) (145,137)
Acquisition of Homebase Work Solutions Ltd. -- -- 50,667
Deferred acquisition cost - i360 inc (255,235) (255,235)
Investment in joint venture (84,699) -- (256,419)
Due from Applied Courseware Technology (A.C.T.) Inc. -- 50,667 (139,299)
Acquisition of InfoCast Corporation -- -- 87
---------------------------------------------------
Cash used in investing activities (771,442) (653,313) (6,248,021)
---------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entity] -- -- 250,000
Increase (decrease) in due to related parties -- (128,266) (49,004)
Repayment of capital lease obligations (111,167) -- (324,975)
Receipt of short-term unsecured loan -- -- 470,000
Payment of short-term unsecured loan -- -- (470,000)
Cash advance from InfoCast [the acquired entity] prior to acquisition -- -- 146,900
Cash proceeds from convertible debentures, net 3,133,602 -- 7,615,834
Cash proceeds from issuance of share capital , net -- 1,890,000 14,221,231
---------------------------------------------------
Cash provided by financing activities 3,022,435 1,761,734 21,859,986
---------------------------------------------------
Net increase (decrease) in cash during the period (506,949) (1,558,391) 3,090,918
Effects of foreign exchange rates change on cash balances (76,248) (40,849) (36,184)
Cash & cash equivalents, beginning of period 3,637,931 3,092,445 --
---------------------------------------------------
Cash & cash equivalents, end of period 3,054,734 1,493,205 3,054,734
===================================================
Supplemental cash flow information --
Interest and lending fees paid during the period 88,696 -- 112,258
Capital lease obligation assumed during the period 31,028 -- 1,490,040
Fair value acquisitions acquired through share issuances during the period -- 17,000,000 17,307,688
===================================================
</TABLE>
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
[U.S. dollars, U.S. GAAP]
Unaudited
<TABLE>
<CAPTION>
Common Stock Additional
Common Issued and Paid-in Deferred
Shares outstanding Capital Compensation
# $ $ $
<S> <C> <C> <C> <C>
Outstanding as of March 31, 2000 24,571,336 23,071 57,933,723 (1,677,491)
Issuance of convertible debentures with warrants 1,727,600
Warrants issued for consulting services - (214,500)
Adjustments resulting from revaluation of stock options
granted to consultants in previous periods (504,000) 504,000
Adjustments resulting from repricing of stock options
granted to consultants in previous periods 81,200 (81,200)
Granting of stock options 73,599 (73,599)
Cancellation of stock options (63,600) 63,600
Amortization of deferred compensation - 743,354
Net loss for the period -
Unrealized loss on short-term equity investment -
Translation adjustment -
-----------------------------------------------------------------------
Outstanding as of June 30, 2000 24,571,336 23,071 59,248,522 (735,836)
-----------------------------------------------------------------------
- - -
</TABLE>
<TABLE>
<CAPTION>
Accumulated other Accumulated Total
Comprehensive development Stockholders'
Warrants loss stage deficit Equity
$ $ $ $
<S> <C> <C> <C> <C>
Outstanding as of March 31, 2000 1,007,875 (237,033) (34,755,138) 22,295,007
Issuance of convertible debentures with warrants 1,727,600
Warrants issued for consulting services 1,246,000 1,031,500
Warrants issued to s stockholder -
Adjustments resulting from revaluation of stock options
granted to consultants in previous periods -
Adjustments resulting from repricing of stock options
of ownership interest -
Granting of stock options -
Cancellation of stock options 743,354
Amortization of deferred compensation -
Net loss for the period (5,602,470) (5,602,470)
Unrealized loss on short-term equity investment (2,275,000) (2,275,000)
Translation adjustment (76,248) (76,248)
------------------------------------------------------------------------
Outstanding as of June 30, 2000 2,253,875 (2,588,281) (40,357,608) 17,843,743
========================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
These unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, these unaudited interim
consolidated financial statements do not include all the financial information
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for fair
presentation have been included. The operating results for the three-month
period ended June 30, 2000 may not be indicative of the operating results that
will occur for the year ended March 31, 2001. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended March 31, 2000.
The balance sheet at March 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The Company is a development stage technology company that has developed the
infrastructure to enable the Company to host both their own customized and third
party software applications that can be accessed remotely by businesses and
their employees.
The Company's primary operational focus as outlined in its business plan entails
significant investment in developing, deploying and marketing electronic
commerce enabling application solutions.
The aggregate future capital requirements to support this investment are
expected to be substantially funded from external resources including issuing
equity and or debt. There can be no assurance that any financing will be
available on terms acceptable to the Company or at all.
The Company believes that its working capital position and its expected revenues
will be sufficient to support the Company's growth plans for approximately the
next six to nine months. In the event that additional financings are not
completed and expected revenues and cash flows are not achieved, the Company
intends to curtail its development plans and reduce expense levels significantly
at the appropriate time. In such event the Company believes that its current
cash reserves will support limited activities until August 2001.
The Company is currently seeking to raise additional funds through private or
public financing, strategic or other relationships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Company generates revenue from hosting services, consulting services and the
resale of educational course content. Revenue from hosting services is
recognized when the service is delivered, or over the term of the applicable
hosting services contract. Consulting revenue is recognized at the time such
consulting services are rendered. Revenue generated from the resale of
educational course content is recognized upon shipment.
3. MARKETABLE EQUITY INVESTMENT
The Company owns 130,000 shares of common stock of another publicly traded
corporation, which is recorded as a marketable equity investment and classified
as "available for sale". The carrying value of the short-term investment was
adjusted to its market value as of June 30, 2000 of $1,625,000, which resulted
in an unrealized loss of $2,275,000 included in comprehensive loss for the three
month period ending June 30, 2000. As of August 15, 2000, the market value of
this short-term investment was approximately $1.73 million.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
4. Acquired distribution and licensing rights
The Company entered into a distribution agreement with ITC Learning Corporation
["ITC") in March 1999, which provided the Company with the perpetual
non-exclusive right to market, sell and electronically convert all existing and
future ITC products in consideration for $975,000 in respect of electronic
distribution to the first 150,000 licensed purchasers.
Pursuant to an amendment to this agreement, dated June 5, 2000, the Company
agreed, in exchange for an additional 100,000 single user licenses of the ITC
courseware content, to forgo any and all product conversion rights to all
existing and future ITC products related to ITC's industrial training products.
The Company retains duplication rights for the Call Centre suite of products and
PC Skills suite of products.
Also, pursuant to the June 5, 2000 amendment to the distribution agreement of
March 1999, the company agreed to forego any and all rights into perpetuity,
including but not limited to intellectual property rights, distribution rights
in the ASTAR Workforce Development product referenced in the contract dated June
29, 1999 [pursuant to which a payment of $2,000,000 was made in the fiscal year
ending March 31, 2000] in exchange for an additional 300,300 prepaid single user
license copies of ITC's Call Centre and PC Skills courseware content.
Total payments of $2,975,000 previously made by the Company to ITC now represent
a total of 550,300 units of single user licenses.
5. SHARE CAPITAL
Authorized, issued and outstanding common stock
The Company has 100,000,000 shares of preferred stock authorized at a par value
of $0.001 per share and has 100,000,000 shares of common stock authorized at a
par value of $0.001 per share. As of March 31, 2000 and June 30, 2000 the
Company had 24,571,336 common shares outstanding, which amount as of June 30,
2000 includes 3,148,162 exchangeable shares of InfoCast Canada which have been
deemed as shares of common stock of the Company for accounting purposes and in
respect of the loss per share calculations because the exchangeable shares are
the economic equivalent of shares of common stock of the Company.
Basic and diluted loss per common share
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. Diluted loss per share is calculated by
adjusting outstanding shares, assuming any dilutive effects of options, warrants
and convertible securities. For all of the periods presented, the effect of
stock options, warrants, and convertible securities were not included as the
effect would be anti-dilutive. Consequently, there is no difference between the
basic and dilutive net loss per share. The weighted average number of potential
common shares from options, warrants and convertible securities for the three
month period ended June 30, 2000 was 5,269,749 compared to 2,798,115 for the
three month period ended June 30, 1999.
Stock options
1998 Stock Option Plan
Pursuant to the Company's 1998 Stock Option Plan as amended on January 29, 1999,
2,250,000 shares of common stock are eligible for grant. As of June 30, 2000 the
Company had 1,950,000 shares of common stock reserved for the exercise of stock
options granted to various individuals involved in the management of the
Company, of which 2,075,000 were originally granted on February 8, 1999 from
which 300,000 were later cancelled during the three months ended June 30, 2000
and 175,000 of which were granted on February 1, 2000. As a result, as of June
30, 2000, consultants hold 650,000 of the options, while employees and directors
hold 1,300,000 of the options.
The options granted on February 8, 1999 expire three years from the date of
grant, are exercisable at $1.00 per share and were fully vested as of March 31,
2000.
The 175,000 options granted on February 1, 2000 expire two years from the date
of grant, vest on July 12, 2000, are exercisable at $1.00 per share and were
granted to a consultant of the Company. The deferred compensation attributable
to these stock options granted to a consultant was revalued as of June 30, 2000
to the then current fair value of $3.19 per stock option [based on an expected
dividend rate of 0%, an expected life of one year, a risk-free interest rate of
6.65%, an expected volatility factor of 1.249 and the June 30, 2000 closing
market price of $4.00 per share of common stock]. As a result, as of June 30,
2000, these options have been revalued at $558,250 of which $386,273 has been
previously recognized as a stock option compensation expense during the year
ended March 31, 2000, $121,277 has been recognized as a stock option
compensation expense during the three months ended June 30, 2000 and of which
the balance of $50,750 has been recorded as deferred compensation in
stockholders' equity.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
1999 Stock Option Plan
Pursuant to the 1999 Stock Option Plan an additional 2,000,000 stock options are
eligible for grant. As of June 30, 2000, all of the eligible stock options were
granted to various employees, officers, consultants and advisors pursuant to the
1999 Stock Option Plan.
On June 14, 2000, the Board of Directors approved the repricing of 1,605,000
stock options previously granted through to February 29, 2000 with original
exercise prices ranging from $7.00 to $8.625 per share to the new exercise price
of $4.00 per share, which resulted in incremental stock option compensation
expense of $63,800 in respect 110,000 repriced stock options held by consultants
and nil in respect of the 1,495,000 repriced stock options held by employees and
directors as the fair value of the Company's stock closed at $4.00 per share as
of June 30, 2000. The repriced stock options will be accounted for as variable
options until they are exercised, forfeited or expired.
During the three month period ended June 30, 2000, 200,000 vested options were
cancelled. Also during the period, 385,000 options were granted to employees and
directors and 15,000 options were granted to a consultant, with exercise prices
of $4.00 per share.
As at June 30, 2000, 1,202,924 stock options have been vested. The remaining
balance will vest on various dates between and July 2000 and Feb 2003 and expire
on various dates between November 2004 and June 2005.
The deferred compensation in respect of the 385,000 stock options granted to
employees during the three month period ended June 30, 2000 was nil because the
exercise price of the options was equal to the market price of the shares of
common stock on the date of grant. The remaining 15,000 stock options granted
during the three month period ended June 30, 2000, have been valued at $28,800
of which $5,338 has been recognized as a stock option compensation expense, and
of which the balance of $23,462 has been recorded as deferred compensation in
stockholders' equity. Stock option compensation expense of $17,725 was charged
during the three month period ended June 30, 2000 in respect of the amortization
of deferred compensation previously recognized in respect of 233,333 stock
options granted on December 8, 2000.
2000 Stock Option Plan
On June 14, 2000 The Board of Directors of the Company approved the 2000 Stock
Option Plan under which an additional 2,000,000 stock options are eligible for
grant. As of June 30, 2000, the Company had granted 350,000 stock options to
various employees, officers, consultants and advisors pursuant to the 2000 Stock
Option Plan, of which 329,000 are held by employees and directors and of which
21,000 are held by consultants. The options are exercisable at $4.00 per share,
expire on June 13, 2005 and vest as follows: 116,674 on the date of grant,
116,669 at June 14, 2001 and 116,657 on June 14, 2002.
The 21,000 outstanding stock options granted to consultants and advisors have
been valued at $44,799, based on a weighted average expected dividend rate of
0%, weighted average expected life of 1.33 years, weighted average risk-free
interest rate 6.65% and a weighted average expected volatility factor of 1.268,
of which $14,424 has been recognized as a stock option compensation expense
during the three month period ended June 30, 2000 and of which the balance is
recorded as deferred compensation. The stock option compensation expense and
deferred compensation in respect of the 329,000 stock options granted to
employees and directors was nil because the exercise price of the options was
greater than the market price of the shares of common stock on the date of
grant.
Other stock options
On June 1, 1999, the directors of the Company approved the grant of 750,000
stock options outside of the 1999 Stock Option Plan to an individual who became
an officer of the Company on September 4, 1999. The stock options were
originally exercisable at a price of $7.00 per share, expire five years from the
date of grant and vest as
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
follows: 250,000 on September 4, 1999 upon the acceptance by the individual of
formal employment with the Company, 250,000 on September 4, 2000 and 250,000 on
September 4, 2001. These outstanding options have been valued at $2,437,500 of
which $1,523,437 and $541,203 has been recognized as a stock option compensation
expense during the year ended March 31, 2000, and the three month period ended
June 30, 2000, respectively, and of which the balance of $372,860 has been
recorded as deferred compensation as of June 30, 2000 in stockholders' equity.
On June 14, 2000, the Board of Directors approved the repricing these stock
options to the new exercise price of $4.00 per share, which resulted in
incremental stock option compensation expense of nil because the fair value of
the Company's stock closed at $4.00 per share as of June 30, 2000. These
repriced stock options will be accounted for as variable options until they are
exercised, forfeited or expired.
On October 18, 1999, the directors of the Company approved the grant of 60,000
stock options outside of the 1999 Stock Option Plan to an individual who was to
provide financial and investor relations consulting services to the Company. The
agreement with this individual was terminated in May 2000 resulting in the
cancellation of unvested options to purchase 30,000 shares of common stock
previously granted resulting in a credit to stock holders compensation expense
of $37,763. Also, on June 14, 2000 the remaining 30,000 stock options were
repriced from $8.25 per share to $4.00 per share resulting in incremental stock
option compensation expense of $17,400 during the three month period ended June
30, 2000. The remaining 30,000 stock options are fully vested and expire two
years from the date of grant.
A summary of the Company's stock option activity is as follows:
Weighted
Average
Number of exercise
options price
# $
--------------------------------------------------------------------------------
Outstanding as of March 31, 2000 4,865,000 4.28
-----------------------------------------------------------------------------
Repricing of all options with exercise prices
greater than $4.00 to $4.00 4,865,000 2.72
Granted 750,000 4.00
Exercised -- --
Cancelled - not vested (30,000) 4.00
Cancelled - vested (500,000) 2.20
--------------------------------------------------------------------------------
Outstanding as of June 30, 2000 5,085,000 2.42
--------------------------------------------------------------------------------
Exercisable as of June 30, 2000 3,374,598 2.43
--------------------------------------------------------------------------------
If the Company had adopted FASB Statement No. 123 ["FASB 123"] in respect of
stock options granted to its employees and directors, the Company would have
recorded a higher stock option compensation expense for the three month period
ended June 30, 2000 of $1,954,317 in respect of the amortization of the
estimated value of the Company's stock options to employees over the vesting
periods of the options, which results in a pro-forma net loss of $7,556,787 and
a pro-forma basic and diluted loss per share of $0.31 in respect of the three
month period ended June 30 , 2000.
The Company assumed the following expected dividend rates, expected lives,
risk-free interest rate and expected volatility factors in respect of the
valuation of stock options granted to employees and directors in accordance with
FASB 123:
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
Weighted
average
--------------------------------------------------------------------------------
Expected dividend rate 0%
Expected life 1 year
Risk-free interest rate 5.91%
Expected volatility 0.9513
--------------------------------------------------------------------------------
Other warrants
Pursuant to a letter agreement dated April 7, 2000, the Company will pay $9,000
per month plus expenses, and issued warrants to purchase 200,000 common shares
to a financial advisor in consideration for general corporate, financial
advisory and investor media relations consulting services over the one year term
of the agreement. In addition, the financial advisor will be entitled to a
commission on certain corporate financing transactions in which the advisor is
involved. These warrants have a purchase price of $6.50 and expire April 7,
2005. These warrants have been valued as of June 30, 2000 at $286,000 in the
accounts [based on a volatility factor of 1.249, an expected life of one year,
an expected dividend rate of 0% and a risk-free interest rate of 6.65%] of which
$71,500 has been recorded as general and administrative expenses and of which
the balance of $214,500 has been recorded as deferred compensation. These
warrants will be revalued each interim period until the final April 7, 2001
measurement date.
On June 14, 2000, 200,000 warrants were issued to the Chairman as compensation
for various services, including his role in negotiating the convertible
debenture financing [note 6] and i360 acquisition [note 8]. The $384,000 value
of these warrants was allocated as follows: $192,000 to deferred convertible
debt issuance costs and $192,000 to deferred i360 acquisition expenses. Also on
June 14, 2000, 300,000 warrants were issued to a shareholder as compensation for
various services, including his role in negotiating the i360 acquisition and
investor relations services. The $576,000 value of these warrants was allocated
as follows: $528,400 to deferred i360 acquisition expenses and $57,600 to
general and administrative expenses. The value of these warrants was determined
by a Black Scholes model based on a volatility factor of 1.268, an expected life
of one year, an expected dividend rate of 0% and a risk-free interest rate of
6.65%. The deferred i360 acquisition costs of $710,400 recorded in respect of
these warrants plus additional deferred cash i360 acquisition costs of $255,235
will be included in the i360 purchase price upon the consummation of the
acquisition.
In addition to the above notes warrants, the following warrants are outstanding
in respect of services provided to the Company in prior periods.
Exercise price Expiry
Issue date Warrants per share date
# $
--------------------------------------------------------------------------------
June 1, 1999 25,000 7.00 May 31, 2001
October 6, 1999 12,500 8.75 May 31, 2001
January 1, 2000 12,500 7.62 May 31, 2001
June 1, 1999 200,000 7.00 May 31, 2001
June 24, 1999 70,000 7.00 June 23, 2001
February 21, 2000 56,000 5.00 February 10, 2002
--------------------------------------------------------------------------------
376,000
6. CONVERTIBLE DEBENTURES
On April 4, 2000, the Company issued 2,500 units by way of a private placement
at $1,000 per unit and on June 15, 2000 the Company issued an additional 960
units by way of a private placement at $1,000 per unit for total gross proceeds
of $3,460,000. The Company had also issued 3,500 units at $1,000 per unit in
March 2000, which in total results in the $6,960,000 of convertible debt
outstanding as of June 30, 2000. Each unit consists of $1,000 principal of
convertible subordinated debentures and 111.111 warrants. The convertible
debentures bear interest accruing from the date of issue at 7% per annum,
payable semi-annually on September 30 and March 31 and mature on March 31, 2005.
The debentures are convertible at the option of the holders at a conversion
price of $6.00 per share.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
The conversion price is subject to adjustment under certain events pursuant to
the agreement. The Company has the right to require the holder to convert all or
a portion of these debentures if [i] at any time after March 31, 2003 the
closing bid price of the Company's common stock exceeds $18.00 for 15
consecutive trading days or [ii] the Company completes a $50 million financing
within one year at a price in excess of $12 per share. Each of the 773,334
warrants are exercisable at $7.50 per share, expire on March 31, 2003 and cannot
be exercised within the first year without also converting the convertible
debentures.
The intrinsic value of the beneficial conversion option of convertible
debentures issued in April and June 2000 has been valued at $1,455,933 and has
been included in interest expense.
Cash commission and other cash costs of $324,300 paid relating to the debentures
issued in April and June 2000 in addition to the $275,000 paid in March 2000
were recorded as a deferred convertible debenture issuance cost. In addition,
the Company issued agent common stock purchase warrants to purchase 96,111
shares of common stock at $7.50 per share to the agents as a placement fee for
the convertible debentures issued in April and June 2000 in addition to the
97,222 warrants issued to the agent in respect of the March 2000 issuance. Based
on a Black-Scholes valuation, the warrants issued in April and June 2000 have
been valued at $271,666 [based on a weighted average volatility factor of 0.895,
a weighted average expected life of 2 years, an expected dividend rate of 0% and
a weighted average risk-free interest rate of 6.26%] and the warrants issued in
March 2000 were valued at $329,583 and have been recorded as a deferred
convertible debenture issuance cost. In addition, in June 2000, 100,000 warrants
valued at $192,000 were issued to the Chairman as compensation for his role in
negotiating the convertible debenture financing [note 5] and were recorded as a
deferred convertible debt issuance costs. The deferred charges related to these
placements are being l amortized on a straight-line basis over the 5-year life
of the debentures.
7. JOINT VENTURE INVESTMENT
Pursuant to a shareholder agreement executed on November 25, 1999 between the
Company, 813040 Alberta Ltd. ["Newco"] and Canpet Energy Group Inc. ["Canpet"],
the Company and Canpet agreed to become shareholders of Newco, with each party
initially becoming a 50% owner of Newco. Newco has developed a web-enabled
trading business model for crude oil and natural gas liquids and other products.
As of June 30, 2000, the Company had advanced a total of $256,420 [Cdn.$375,000]
to Newco; $3,440 [Cdn.$5,000] for the initial purchase of common shares and
$252,980 [Cdn.$370,000] in the form of shareholder loans which have a conversion
feature attached allowing the Company to convert the advances into additional
shares of Newco.
Since its inception, Newco has issued additional common shares resulting in the
dilution of the Company's ownership in Newco from 50% to 1.28% [28.4% on a
fully-diluted basis] as of June 30, 2000.
As a result, commencing April 1, 2000 the Company has accounted for this
investment using the cost method, which resulted in recording the final $84,699
advanced during the three months ended June 30, 2000 at cost. The prior equity
and shareholder loans provided by the Company were reduced to nil during the
year ended March 31, 2000 when the Company was accounting for this investment
using the equity method.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF INFOCAST CORPORATION FOR THREE MONTH PERIOD ENDED JUNE 30, 2000
(Unaudited)
8. SUBSEQUENT EVENTS
Merger with i360, Inc.
On August 15, 2000, i360, inc. ("i360") merged with and into the Company
pursuant to the definitive Agreement and Plan of Merger (the "Merger Agreement")
dated as of May 3, 2000, as amended, providing for the acquisition by the
Company of all of the outstanding shares of common stock of i360. The Merger
Agreement provides for the statutory merger of i360 into the Company. As of
August 15, 2000, the holders of i360's issued and outstanding common stock were
deemed to have received 0.30 shares of the Company's common stock for each share
of i360 common stock, resulting in the deemed issuance of an aggregate of
7,584,000 shares of the Company's common stock. In addition, all outstanding
warrants and stock options to purchase shares of i360 common stock converted
into merger warrants and stock options to purchase shares of the Company's
common stock at a one to 0.30 exchange ratio. As a result of such deemed
conversion, an aggregate of 4,416,000 merger warrants of the Company (4,328,625
merger warrants at an exercise price of $0.30 and 87,375 merger warrants at an
exercise price of $3.18 per share) and 1,131,602 stock options with an exercise
price of $4.00 per share were deemed issued as at August 15, 2000. The
transaction was approved by the Boards of Directors and stockholders of the
Company and i360. The merger warrants will vest as follows: 25% on February 21,
2000, 25% on September 21, 2000, 25% on January 21, 2001 and 25% on January 21,
2002. The stock options will vest as follows: 33% on May 2, 2001, 33% on May 2,
2002 and 33% on May 2, 2003.
During the three-month period June 30, 2000, the Company incurred costs of
approximately $350,000 related to the provision of hosting services to i360 for
which the Company recorded no revenues.
On June 22, 2000, the Company advanced $145,137 to i360 in consideration for a
promissory note bearing interest at prime plus 2% per annum. The promissory note
is payable at the time of the acquisition or six months following the
termination of the Merger Agreement and is collateralized by a security
agreement. On July 28, 2000, the Company advanced an additional $342,000 to i360
on the same terms and conditions.
In August, 2000, a claim was filed against i360 alleging a breach of contract by
i360 in connection with the distribution of i360's service offering. The claim
was for an indeterminate amount of damages. On August 17, 2000, counsel for i360
met with counsel for the plaintiffs regarding this matter. The Company believes
the claim is frivolous and without merit and intends to defend it vigorously.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1936, as amended, which are intended to be
covered by the safe harbors created thereby. Although we believe that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this report will
prove to be accurate. Factors that could cause actual results to differ from the
results discussed in the forward-looking statements include, but are not limited
to, competition, product acceptance and changing technology. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
The consolidated financial statements are the continuing financial
statements of Virtual Performance Systems Inc. ["VPS"] [a development stage
company], an Ontario corporation which was incorporated on July 29, 1997. VPS
had a 100% interest in, and subsequently amalgamated with, Cheltenham
Technologies Corporation, an Ontario corporation. VPS has a 100% interest in
Cheltenham Interactive Corporation ["Cheltenham Interactive"], an inactive
Ontario corporation, and Cheltenham Technologies (Bermuda) Corporation
["Cheltenham Bermuda"], a Barbados corporation, which owns certain intellectual
properties. On January 29, 1999, VPS acquired the net assets of InfoCast
Corporation [formerly Grant Reserve Corporation] ["InfoCast"], a United States
non-operating company traded on the NASDAQ OTC Bulletin Board which had a 100%
interest in InfoCast Canada Corporation ["InfoCast Canada"]. After the
acquisition, VPS continued under the name of InfoCast Corporation. On May 13,
1999, InfoCast Canada acquired 100% interest in Homebase Worksolution Ltd.
("Homebase"). VPS, Cheltenham Interactive and Cheltenham Bermuda were
amalgamated into InfoCast Canada on March 31, 2000. InfoCast, InfoCast Canada,
Homebase, are collectively referred to as the "Company". The Company is a
development stage technology company that has developed the infrastructure to
enable the Company to host both their own customized and third party software
applications that can be accessed remotely by businesses and their employees.
The following discussion should be read in conjunction with the
Company's historical financial statements and notes thereto included elsewhere
in this quarterly report.
Overview
We are an emerging company that has developed the infrastructure to
enable us to host both our own customized and third party software applications
that can be accessed remotely by businesses and their employees. This
infrastructure consists of: computer hardware purchased from third parties;
software applications; and communication connections over private and public
networks, including the Internet. We are now entering the commercialization
phase and plan to provide our customers with access to our infrastructure and
hosted applications on a per use basis. Companies providing such services have
recently come to be known as application service providers or "ASPs."
We have incurred operating losses since our inception in July 1997.
We have had limited sales of our products and services on a commercial basis. We
have sustained ourselves through the sale of our Common Stock, convertible debt
and warrants to purchase Common Stock in a series of private placements, and
through shareholder loans. On an ongoing basis, we will continue to raise
additional funds through private or public financings, strategic or other
relationships. There can be no assurance that such funds will be available on
commercially reasonable terms in the future.
Results of Operations
Three months ended June 30, 2000 vs. three months ended June 30, 1999
Revenue increased from zero for the three months ended June 30, 1999
to $137,137 for the three months ended June 30, 2000 as we began to earn hosting
revenues and hosting related consulting services during the period ended June
30, 2000.
<PAGE>
Consulting revenue increased from zero for the three months ended
June, 1999 to $72,625 for the three months ended June 30, 2000 as the Company
performed some ASP hosting related consulting services during the period ended
June 30, 2000.
Miscellaneous revenue increased from zero for the three months ended
June 30, 1999 to $21,465 for the three months ended June 30, 2000. This increase
is primarily due to revenue received from a customer related to contract
management.
Interest income increased from $23,157 for the three months ended
June 30, 1999 to $54,328 for the three months ended June 30, 2000. The proceeds
received from the private placements in 1999 and 2000 were invested in short
term deposits which generated interest income for us during the three months
ended June 30, 2000, consistent with our investment policy.
General, administrative and selling expenses increased from
$1,936,815 for the three months ended June 30, 1999 to $2,161,796 for the three
months ended June 30, 2000. The Company recorded approximately $225,000 as
expenses directly related to revenue in the three month period ended June 30,
2000 compared to nil for the same period ended June 30, 1999. There was a
reduction in consulting expenses from $738,892 (12 consultants) for the 3 months
ended June 30, 1999 to $186,150 (6 consultants) for the three months ended June
30, 2000. The Company incurred expenses of $285,210 related compensation paid to
HomeBase Work Solutions officers for the three months ended June 30, 1999 with
no comparative expense in the three-month period ending June 30, 2000. The
Company had fifteen more employees involved in general, administrative and
selling functions in the three month period ended June 30, 2000 than for the
same period ended June 30, 1999, resulting in approximately $417,000 increase in
expenses.
Stock option compensation expense decreased from $5,829,647 for the
three months ended June 30, 1999 to $743,354 for the three months ended June 30,
2000. This decrease is mainly due to a lower number of unvested stock options
outstanding during the three months ended June 30, 2000 compared to the same
period last year.
Research and development expenses decreased from $718,657 for the
three months ended June 30, 1999 to $119,132 for the three months ended June 30,
2000. The Company incurred expenses of approximately $337,000 in the three month
period ended June 30, 1999 from the write off of advances made to Applied
Courseware Technology Inc. ["ACT"] which had been used to fund development
expenses related to the electronic conversion of courseware. Consulting expense
for the three months ended June 30, 2000 decreased by approximately $121,000
compared to the same period last year.
Interest and loan fees increased from zero for the three months
ended June 30, 1999 to $1,599,609 for the three months ended June 30, 2000. The
convertible subordinated debentures that were issued in April, 2000 and in June,
2000 have a conversion feature that was in-the-money and exercisable at the
dates of issuance resulting in the intrinsic value of the feature of $1,455,933
being charged to interest expense at the time the debentures were issued. The
balance relates to interest recorded on capital leases and convertible debt.
Amortization expenses increased from $645,873 for the three months
ended June 30, 1999 to $1,311,778 for the three months ended June 30, 2000. The
variance is due to the amortization period (3 months in the three month period
ended June 30, 2000 compared to 1.5 months in the same period ended June 30,
1999) of the acquired intellectual property and goodwill resulting from the
acquisition of HomeBase Work Solutions on May 13, 1999.
Depreciation expenses increased from $8,962 for the three months
ended June 30, 1999 to $205,766 for the three months ended June 30, 2000. This
increase is a result of the increase of the capital asset base by approximately
$2,900,000 between June 30, 1999 and June 30, 2000.
Unrealized loss on marketable equity investment of $2,275,000 in the
three months ended June 30, 2000 was due to the writedown of short term
investment to market value of $1,625,000 as at June 30, 2000.
<PAGE>
Liquidity and Capital Resources
Inception to June 30, 2000
At June 30, 2000, we had cash and cash equivalents of $3,054,734 and
working capital of $3,757,461. To date, we have generated limited revenues.
In February 2000 we issued 500,000 shares of Common Stock in a
private placement for which we received 150,000 shares of restricted Common
Stock of another publicly traded company as consideration, of which we will
retain 130,000 shares after commissions. At June 30, 2000, these 130,000 shares
had a market value of $1,625,000 and is included in the above working capital.
At August 15, 2000, the market value of this marketable equity investment was
approximately $1.73 million.
Prior to March 31, 2000, we raised cash proceeds of $14,221,231, net
of share issue costs, from a series of private placements of the Company's
common stock.
Prior to March 31, 2000, we raised cash proceeds of $3,225,000, net
of commissions, from issuance of convertible subordinated debentures. In April
2000, we issued an additional 2,500 units of convertible subordinated debentures
at $1,000 per unit for proceeds of $2,325,000, net of commissions. In June 2000,
we issued an additional 960 units of convertible subordinated debentures at
$1,000 per unit for proceeds of $808,600 net of commissions. The proceeds from
these issues are included in our Cash position as at June 30, 2000.
From our inception, we have used $12,890,000 for operating
activities before changes in non-cash working capital balances mainly as a
result of general, administrative and selling and research and development
expenditures, net of revenues. We used a further $2,428,000 for the purchase of
capital assets, $2,975,000 on the purchase of distribution rights, $255,000 on
acquisition costs of i360 and $256,000 in a joint venture.
We expect to use our existing cash and cash equivalents to deploy
our information hub products and services, to deploy and enhance our virtual
contact center application, for the deployment and electronic conversion of
courseware for the distance learning application, and for the post-acquisition
funding of i360 Inc. expenses. We believe that the revenue we expect to generate
and related cash collections from sales of products and services will help fund
the cash requirements, but there can be no assurance that it will do so. We will
use any remaining capital resources to fund possible complementary acquisitions,
develop new technologies, and other corporate working capital needs.
We believe that our existing cash, expected revenues as well as
additional proceeds we hope to receive from the completion of future potential
financings will be sufficient to support our growth for approximately the next
twelve months. In the event that additional financings are not completed and
expected revenues and cash flows are not achieved, the Company intends to
curtail its development plans and reduce expense levels significantly at the
appropriate time. In such event, the Company believes that its current cash
reserves will support limited activities until August 2001.
On an ongoing basis, we continue to raise additional funds through
private or public financing, strategic or other relationships. There can be no
assurance that we will be able to raise any additional funds.
Inflation has not been a major factor in our business. There can be
no assurances that this will continue.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to immaterial levels of market risks with
respect to changes in foreign currency exchange rates and interest rates. Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as foreign currency exchange and interest rates. To the extent that
the Company consummates financings outside of Canada, the Company receives
proceeds in currency other than the Canadian dollar. Most of the Company's
operating expenses are incurred in Canadian dollars. Thus, the Company's results
of operations will tend to be adversely affected if there is a strong Canadian
dollar. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes, nor does it enter into
financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates.
The Company currently holds 130,000 shares of common stock of
another publicly traded corporation. The market value of these shares is subject
to fluctuation on the stock market on which these shares trade and which may
adversely affect the potential proceeds when these shares are sold.
The Company issued convertible subordinated debentures in March, April
and June 2000, in the amount of $6.96 million, which pay interest at a fixed
rate of 7%. The Company is exposed to changes in interest rates as it affects
the value of the debt and the Company's relative cost of capital.
While the Company seeks to place its and cash equivalents with high
credit-quality financial institutions, the Company is still exposed to credit
risk for uninsured amounts held by such institutions.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement on Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and
Hedging Activities in 1998. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 in 2001.
The Company does not believe the adoption of SFAS No. 133 will have a material
effect on the financial position or results of operations of the Company.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On June 26, 2000, the SEC issued SAB 101 to defer the effective date
of implementation of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 31, 1999. The Company is required to adopt
SAB 101 by March 31, 2001. Management has note yet determined the impact that
SAB No. 101 will have on the financial position or results of operations of the
Company.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Litigation
In August, 2000, a claim was filed against i360 alleging a breach of contract by
i360 in connection with the distribution of i360's service offering. The claim
was for an indeterminate amount of damages. On August 17, 2000, counsel for i360
met with counsel for the plaintiffs regarding this matter. The Company believes
the claim is frivolous and without merit and intends to defend it vigorously.
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
The following unregistered securities were issued by the Company during the
quarter ended June 30, 2000:
<TABLE>
<CAPTION>
Number of Shares Offering/
Date of Description of Sold/Issued/Subject Exercise
Sale/Issuance Securities Issued To Options or Warrants Price Per Share Notes
----------------- -------------------- --------------------- --------------- -----
<S> <C> <C> <C> <C>
April 2000 Common Shares 32,147 Exchange of InfoCast
Canada exchangeable
shares into Infocast shares
April 2000 Warrants 200,000 $6.50 Financial consulting
Services
April 2000 Share Purchase 277,778 $7.50 As part of the convertible
Warrants subordinated debenture
Financing
April 2000 Agent Share 69,444 $7.50 As part of the convertible
Warrants subordinated debenture
Financing.
May 2000 Common shares 133,138 Exchange of InfoCast
Canada exchangeable
Shares into Infocast shares
May 2000 Options 175,000 $4.00 Granted to 2 employees
and a consultant under the
1999 Stock Option Plan.
May 2000 Options 25,000 $4.00 Granted to a director
and a consultant under the
1999 Stock Option Plan.
June 2000 Warrants 500,000 $4.00 Granted as compensation
to a consultant and
director for seeking
acquisition target,
financing opportunities
and investor relation
services.
June 2000 Options 200,000 $4.00 Granted to 10 employees
and a consultant under the
1999 Stock Option Plan.
June 2000 Options 350,000 $4.00 Granted to 18 employees
and a consultant under the
2000 Stock Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
June 2000 Common Shares 13,761 $4.00 Exchange of InfoCast
Canada exchangeable
Shares into Infocast shares
June 2000 Share Purchase 106,667 $7.50 As part of the convertible
Warrants subordinated debenture
Financing
June 2000 Agent Share 26,667 $7.50 As part of the convertible
Purchase Warrants subordinated debenture
Financing.
</TABLE>
The issuance of these securities is claimed to be exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
as transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of these securities.
<PAGE>
Item 5. Other Information
Merger with i360, Inc.
On August 15, 2000, i360, inc. ("i360") merged with and into the
Company pursuant to that definitive Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 3, 2000, as amended, providing for the acquisition
by the Company of all of the outstanding shares of common stock of i360. The
Merger Agreement provides for the statutory merger of i360 into the Company. As
of the Effective Time, August 15, 2000, the holders of i360's issued and
outstanding common stock are deemed to have received 0.30 shares of the
Company's common stock for each share of i360 common stock, resulting in the
deemed issuance of an aggregate of 7,584,000 shares of the Company's common
stock. In addition, all outstanding warrants and stock options to purchase
shares of i360 common stock converted into merger warrants and stock options to
purchase shares of the Company's common stock at a one to 0.30 exchange ratio.
As a result of such deemed conversion, an aggregate of 4,416,000 merger warrants
of the Company (4,328,625 merger warrants at an exercise price of $0.30 and
87,375 merger warrants at an exercise price of $3.18 per share) and 1,131,602
stock options with an exercise price of $4.00 per share were deemed issued at
the Effective Time. The transaction was approved by the Boards of Directors and
stockholders of the Company and i360. The above discussed merger warrants will
vest as follows: 25% on February 21, 2000, 25% on September 21, 2000, 25% on
January 21, 2001 and 25% on January 21, 2002. The above discussed stock options
will vest as follows: 33% on May 2, 2001, 33% on May 2, 2002 and 33% on May 2,
2003.
Pursuant to the Merger Agreement, two directors of i360 were
appointed to the Board of Directors of the Company. Furthermore, pursuant to the
terms of the Merger Agreement, certain i360 executives have placed an aggregate
of 750,000 shares of the Company's common stock (representing 2.5 million shares
of i360's common stock) in escrow. The escrowed shares are being held pursuant
to an escrow agreement to reimburse the Company for any claims which may arise
as a result of indemnifying the former directors of i360 for their acts or
omissions at or prior to the Effective Time of the merger and to satisfy claims
that may arise as a result of any breach of the representations and warranties
of i360 contained in the Merger Agreement.
The Company and the i360 shareholders have entered into a
registration rights agreement as of August 15, 2000 which provides that the
Company shall use its best efforts to register the shares of the Company's
common stock issued to the i360 shareholders in exchange for i360 common stock
as soon as possible and which places certain selling limitations on such
holders.
During the three-month period June 30, 2000, the Company incurred
costs of approximately $350,000 related to the provision of hosting services to
i360 for which the Company recorded no revenues.
On June 22, 2000, the Company advanced $145,137 to i360 in
consideration for a promissory note bearing interest at prime plus 2% per annum.
The promissory note is payable at the time of the acquisition or six months
following the termination of the Merger Agreement and is collateralized by a
security agreement. On July 28, 2000, the Company advanced an additional
$342,000 to i360 on the same terms and conditions.
The Company will file pro forma financial statements effecting the
merger of i360 with and into the Company with 60 days of this filing pursuant to
applicable securities regulations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On May 4, 2000 the Company filed a current report on form 8-K
relating to its entering into the Agreement and Plan of Merger with i360.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
InfoCast Corporation
Date: August 21, 2000 By: /s/Herve Seguin
----------------------------
Herve Seguin
Chief Financial Officer
(Duly Authorized Officer
and Principal
Financial Officer)
