SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 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 No.)
One Richmond Street West
Suite 902
Toronto, Ontario M5H 3W4
(Address and zip code of principal executive offices)
416-867-1681
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
COMMON STOCK, $.001 PAR VALUE
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of May 31, 2000, the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was $66,359,913, which
value, solely for the purposes of this calculation excludes shares held by the
Registrant's officers, directors, and their affiliates. Such exclusion should
not be deemed a determination or an admission by the Registrant that all such
individuals are, in fact, affiliates of the Registrant. The number of shares of
the Registrant's Common Stock issued and outstanding as of May 31, 2000 was
21,409,413.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INFOCAST CORPORATION
TABLE OF CONTENTS
PART I Page No.
Item 1. Business......................................................3
Item 2. Properties...................................................16
Item 3. Legal Proceedings............................................16
Item 4. Submission of Matters to a Vote of Security Holders..........16
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters......................................17
Item 6. Selected Financial Data......................................20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...27
Item 8. Financial Statements and Supplementary Data..................27
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.......................27
PART III
Item 10. Directors and Executive Officers of the Registrant...........28
Item 11. Executive Compensation.......................................30
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................35
Item 13. Certain Relationships and Related Transactions...............37
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................................39
Signatures.................................................................40
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PART I
Item 1. Business
General
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."
Traditionally, businesses have had to purchase their own computing
systems, including hardware and software, as well as hire, train and retain
highly skilled employees to operate and maintain these systems, all of which
require significant capital and ongoing operating expenditures. By outsourcing
these functions to an application service provider, an enterprise will be able
to:
o Reduce upfront and ongoing capital expenditures;
o Reduce its investment in information technology personnel;
o Access up-to-date, highly scalable, reliable and flexible
technology;
o Focus its resources on its core business by outsourcing a
non-core function; and
o Potentially shorten implementation time for new computer systems.
In order to host our customized and third-party software applications,
we have established two strategically placed data centers, which we refer to as
information hubs or i-Hubs, located in Calgary and Toronto, Canada. We also have
an agreement with AT&T Canada Long Distance Services Company ("AT&T Canada")
that allows us access to AT&T Canada's telecommunications network to connect
these information hubs to customers. Our two information hubs became
commercially operational in December 1999 and we expect to expand these
information hubs and/or install additional information hubs across North America
as needed. We expect each installation to be implemented on Sun Microsystems
Inc. servers using Sun Solaris, Netscape and Java-related technologies, which we
believe will provide a high level of reliability, scalability and performance.
These information hubs will deliver information to information users, including
businesses and their employees and customers worldwide, in real-time, in any
format - data, voice or animation, through satellite, cable or private or public
telecommunications networks, including the Internet.
We host third-party software applications, as well as the following
software applications that we have developed:
o Virtual Call Center - This application will permit businesses to
service inbound and outbound customer calls at any time through a customer
service representative who can be located anywhere.
o Distance Learning - This application will permit corporate and
academic learners to access training on-line, from anywhere, at any time.
These applications became commercially available by the end of the
fiscal year ending March 31, 2000.
We are a development stage company. Since the inception of our
predecessor, Virtual Performance Systems Inc., in July 1997 and as at March 31,
2000, we have had limited sales of products and services on a commercial basis
and have had limited revenues. We incurred losses of $96,161 for the period from
July 29, 1997 (inception) to December 31, 1997, $423,872 for the year ended
December 31, 1998, $3,083,921 for the three month period ended March 31, 1999
and $31,151,184 for year ended March 31, 2000, resulting in an accumulated
deficit of $34,755,138 at March 31, 2000. Losses are continuing through the date
of this Report and we anticipate that losses will continue
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for the foreseeable future. In addition, the market for our expected services is
highly competitive and subject to rapid technological change. We expect to face
significant competition in the future. As an emerging company in a new and
rapidly evolving market, we face risks and uncertainties relating to our ability
to successfully implement our business plan. We may not successfully address all
of these issues.
History of the Company
We were incorporated on December 23, 1997. Prior to 1999, our sole
business was mining and we held certain mineral interests in the United States.
Due to changes in the United States regulatory environment, our management
determined that it would be appropriate for us to sell all of our mining assets,
which represented substantially all of our assets. We completed the sale of our
mining assets in the fourth quarter of 1998. During 1998, we changed our name
from Grant Reserve Corporation to InfoCast Corporation. Prior to changing our
name and subsequent to the sale of our mining assets, we were a publicly-traded
company whose common stock was quoted on the OTC Bulletin Board under the symbol
"GNRS" without any ongoing business operations. During the year ended December
31, 1998, we issued 5,000,000 pre-split shares of Common Stock to Sheridan
Reserve Incorporated for the acquisition of two mining interests and in April
1998 issued 1,000,000 pre-split units at a price of $0.50 per unit in a private
placement financing pursuant to Rule 504 of Regulation D of the Securities Act
of 1933, as amended. Each unit consisted of one pre-split share of Common Stock
and one pre-split Common Stock purchase warrant with an exercise price of $0.50
per share exercisable before December 31, 1998. The $500,000 issue price of the
units was satisfied through the receipt of cash proceeds of $260,000 and the
settlement of a non-interest bearing note of $240,000 that was due from us to
Sheridan Reserve Incorporated.
On October 13, 1998, our shareholders voted to effect a two-for-one
stock split that increased the number of outstanding shares of Common Stock from
6,000,000 to 12,000,000 and increased the number of outstanding Common Stock
purchase warrants from 1,000,000 to 2,000,000. Accordingly, the exercise price
of the Common Stock purchase warrants was reduced to $0.25 per share.
Subsequently, 1,580,000 of the Common Stock purchase warrants were exercised at
$0.25 each for cash proceeds of $395,000. The remaining 420,000 Common Stock
purchase warrants expired.
On January 29, 1999, we consummated the acquisition of all of the
voting capital stock of Virtual Performance Systems, Inc., a Canadian
corporation, for 1,500,000 shares of InfoCast Canada Corporation, our
wholly-owned subsidiary ("InfoCast Canada"), which are exchangeable on a
one-for-one basis for shares of our Common Stock. Virtual Performance Systems,
Inc. was a development stage company that was developing solutions to permit
businesses to service inbound and outbound customer calls at any time through a
customer service representative who can be located anywhere and to permit
corporate and academic learners to access training on-line, from anywhere, at
any time. The consolidated financial statements of the Company are the
continuing financial statements of Virtual Performance Systems, Inc.
In March 1999, we consummated a private placement financing pursuant to
which we issued 2,767,334 shares of Common Stock for an aggregate offering price
of $4,151,001 pursuant to Regulation S of the Securities Act of 1933, as
amended.
In March 1999, we consummated a private placement financing pursuant to
which we issued 265,002 shares of Common Stock for an aggregate offering price
of $397,503 pursuant to Regulation D of the Securities Act of 1933, as amended.
Pursuant to an agreement dated December 15, 1998, as amended by a
letter agreement dated March 12, 1999, between us and ITC Learning Corporation,
we purchased from ITC Learning Corporation the distribution rights for all
current and future ITC Learning Corporation education and training products in
consideration for $975,000 in respect of the first 150,000 user licenses and
based on a shared revenue formula for user licenses in excess of 150,000. We
paid the first $500,000 of the initial $975,000 purchase price in March 1999 and
the final $475,000 of the initial $975,000 purchase price in April 1999.
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Pursuant to an agreement dated March 22, 1999, we issued 60,000 shares
of Common Stock to Thomson Kernaghan & Co. Limited, a financial investment
consulting firm, for assistance in securing additional financing over the
following year.
On May 13, 1999, we acquired all of the outstanding common shares of
HomeBase Work Solutions Ltd. HomeBase Work Solutions, headquartered in Calgary,
Alberta, Canada, was developing a solution to permit businesses to enable their
employees to work from remote locations via computers. The purchase price was
satisfied by the issuance of 3,400,000 shares of InfoCast Canada, our
subsidiary. The InfoCast Canada shares are exchangeable on a one-for-one basis
for shares of our Common Stock.
In June and October 1999 and January 2000, we issued warrants to
purchase 25,000, 12,500 and 12,500 shares of Common Stock at an exercise price
of $7.00, $8.75 and $7.62 per share, respectively, to the Poretz Group, an
investor relations consulting firm, in consideration for on-going investor
relations consulting services, including reviewing our public releases, setting
up meetings between us and members of the investment banking community and
developing our public image.
In June 1999, in return for consulting services in respect of the
development of our virtual call center application and for the InfoCast
corporate name, we issued warrants to purchase an aggregate of 50,000 shares of
Common Stock at an exercise price of $7.00 per share to each of Tsun Chow, Armin
Roeseler, Paul Prabhaker and John J. Malley.
In June 1999, we entered into an agreement with ITC Learning
Corporation pursuant to which we will become ITC Learning Corporation's
exclusive distance learning technology distributor for the delivery of
educational material for the State of California for consideration of
$2,000,000. We paid this amount in three installments in August, September and
October 1999.
On June 24, 1999, we consummated a private placement financing pursuant
to which we issued 420,000 shares of Common Stock and warrants to purchase
70,000 shares of Common Stock at an exercise price of $7.00 per share for an
aggregate offering price of $2,100,000 pursuant to Regulation D of the
Securities Act of 1933, as amended.
From July to November 30, 1999, we issued 1,879,000 shares of Common
Stock in a private placement financing for an aggregate offering price of
$10,334,550 pursuant to Regulation S of the Securities Act of 1933, as amended.
In October 1999, we issued options to purchase 60,000 shares of Common
Stock at an exercise price of $8.25 per share to Howard Nichol, an investor
relations consultant, for services which included assisting us with
communications with and presentations to stock brokers, analysts and private and
institutional investors, providing access to the financial media and introducing
us to potential acquisition or alliance opportunities. This arrangement was
terminated in May 2000, resulting in the cancellation of options to purchase
30,000 shares of Common Stock previously granted.
In October 1999, we entered into a non-exclusive investment banking and
financial advisory services agreement with N.M. Rothschild & Sons Canada Limited
and N.M. Rothschild & Sons (Washington) L.L.C. (together "Rothschild"). This
agreement was terminated in March 2000. In the event a Transaction (as defined
below) was implemented during the term of Rothschild's engagement, or within a
period of one year after the termination of Rothschild's engagement under the
agreement on which Rothschild worked or with a party identified by Rothschild
during the term of the agreement, we will pay a fee of 3% of the value of the
Transaction (the "Performance Fee") to Rothschild in recognition of Rothschild's
contribution to such Transaction. For the purposes of the agreement,
"Transaction" means any acquisition, merger, alliance or business combination
which involves us and which shall be valued for purposes of the Performance Fee
to include any debt incurred or assumed by the purchaser or parties in the
combination and any shares issued or to be issued as part of the consideration
for any possible transaction.
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In January 2000, we issued 200,000 shares of Common Stock to the
shareholders of Applied Courseware Technology Inc. pursuant to the Minutes of
Settlement Agreement signed on January 7, 2000.
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.
On February 17, 2000, we entered into a letter of agreement with i360,
Inc. ("i360") and certain of the shareholders of i360, whereby i360 agreed to
merge with and into us. On May 3, 2000, the Company and i360 executed an
Agreement and Plan of Merger with i360 providing for the acquisition by us of
all of the outstanding shares of common stock of i360. The Merger Agreement
provides for the statutory merger of i360 into the Company, pursuant to which
the holders of i360's issued and outstanding common stock will be entitled to
receive 0.3 shares of our Common Stock per share of i360 common stock (an
aggregate of 7,584,000 shares of our Common Stock). All outstanding options to
purchase shares of i360 common stock will convert into options to purchase
shares of our Common Stock at a 1:0.3 exchange ratio (an aggregate of 4,416,000
InfoCast Share Purchase Options and 1,030,803 InfoCast Employee Options). The
transaction, which has been approved by the boards of directors of InfoCast and
i360, is subject to certain conditions, including the approval of the
transaction by the stockholders of i360 and the Company, successful completion
of any regulatory approvals and certain other conditions.
In March and April 2000, we raised $6,000,000, before commissions and
expenses, by way of convertible subordinated debentures. These 7% convertible
subordinated debentures pay interest semi annually, are convertible into shares
of our Common Stock and have common stock purchase warrants attached to them.
In April 2000, we issued warrants to purchase 200,000 shares of Common
Stock at an exercise price of $6.50 per share to Small Caps Online LLC, a
registered broker-dealer focused on identifying emerging growth companies in the
healthcare and information technology sectors.
Background
The ability to deliver information to anyone, anywhere and at any time,
remains the cornerstone objective of today's communications systems. This is the
case whether that information is transmitted over a private or public network
(including the Internet), via computers, telephone and/or satellite.
We believe that rapid growth of the Internet, electronic commerce and
corporate intranets is an indication that companies and individuals are
continuing to increase their use of corporate and home-based systems to send and
receive ever more complex information.
The technological dilemma facing suppliers of information, and those
wanting to receive it, is the inability of the various networks, operating
systems, communication protocols and communications systems to interface
seamlessly. This situation is analogous to people from different countries with
different languages all trying to communicate at once without benefit of
translation.
A business opportunity exists in the near term for the deployment of
technology that links different network infrastructures so that information can
be either: (i) accessed remotely in near real-time across dedicated networks; or
(ii) reduced with regard to the fidelity and resolution of its content and then
accessed through the Internet.
As an emerging application service provider, our focus is on developing
the infrastructure to enable customers to access the best software applications
via a standard web browser and Internet access without regard to geographical
point of origin, underlying network architecture or personal computer make or
model.
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Our Information Hubs
In order to host our customized and third-party software applications,
we are developing a network of strategically placed data centers, which we refer
to as information hubs or i-Hubs. We expect each installation to be implemented
on Sun Microsystems servers using Sun Solaris, Netscape and Java-related
technologies, which we believe will provide a high level of reliability,
scalability and performance. To date, we have completed the installation of two
information hubs based on the following server platforms:
Calgary, Canada:
o One Sun Microsystems Enterprise 10,000 server
o Ten Sun Microsystems Netra T-1 servers
o Four Sun Microsystems Enterprise 250 servers
o Two Sun Microsystems 450 servers
Toronto, Canada:
o Four Compaq 450 servers
o Five Sun Microsystems Netra T-1 servers
o 2 PII 450 web servers
o 1 PII 450 firewall
o 1 Cisco 7200 router
o 1 Cisco 1600 router
o 2 Cisco switches
o 1 PII 450 database server
Both information hubs were commercially operational as of December
1999, and we expect to expand these information hubs and/or install additional
information hubs across North America as needed.
In addition to the hosting servers, we anticipate that each operational
information hub will provide customers with the following:
o physical security;
o uninterruptable power supply with optional generator backup;
o disaster recovery plan;
o guaranteed quality of service levels;
o help desk support;
o highly reliable Internet access; and
o network monitoring and supervision.
To execute our information hub strategy, we either have established, or
are currently negotiating to establish the following strategic relationships:
Sun Microsystems, Inc. We have negotiated an agreement with Sun
Microsystems pursuant to which we have been designated under Sun Microsystems'
ServiceProvider.com(TM) program. Under this agreement, we have no minimum
financial commitments, but are entitled to purchase equipment from Sun
Microsystems at a minimum prescribed discount from Sun Microsystems' list
prices. The program does not include any exclusivity arrangements. As a
participant in this program, we now have access to preferential pricing and
service treatment from Sun Microsystems, as well as:
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o a recognized network and Internet computer alliance with worldwide
service and support;
o a stable operating system environment, further enabled by the
networking capability of Sun Microsystems' Java programming
language and environment;
o a clear and distinctive processing performance that meets the
challenges of network computing;
o solid communication tools and programs to support global network
connectivity;
o Internet firewall technology that provides support users with
seamless access; and
o professionals worldwide who can support complex network designs and
problems.
AT&T Canada We have entered into a non-binding letter of understanding
with AT&T Canada that provides that the parties will endeavor to negotiate and
execute the following agreements: (i) a development and supply agreement whereby
we would supply software learning products for co-marketing with AT&T Canada;
(ii) a telecommunications agreement whereby AT&T Canada would provide the
telecommunications services necessary to facilitate the delivery of such
products to customers and (iii) a cooperative marketing agreement whereby the
parties would work jointly to market and promote future products and services.
In addition, we are currently negotiating an arrangement that would define how
both AT&T Canada and InfoCast Corporation will offer the virtual call center
application being developed by us to AT&T Canada's customers. To date, we have
entered into the telecommunications agreement with AT&T Canada, which defines
pricing levels. We do not have any financial commitments pursuant to such
agreement. We intend to negotiate the remaining agreements over the balance of
fiscal 2001. We cannot assure you that we will reach any such other agreements.
Such agreements with AT&T Canada would provide us with:
o a relationship with a recognized global telecommunications
provider;
o connectivity between our information hubs and the information
users;
o a marketing channel to access potential customers; and
o access to North American and international call center markets.
Our Customized Software Applications
Virtual Call Center Application
The traditional method of providing customer support has been to
establish a call center whereby customer service representatives, located in a
central "brick and mortar" facility, respond to incoming client inquiries or
make outgoing calls via telephone banks. Typically, call centers are used for
help desk functions, telemarketing, catalog order taking and debt collection.
Traditional call centers are generally limited by the following:
o physical limitations with respect to the number of customer service
agents able to work based on the telephone lines and desks
available, which in turn limits the volume of calls that can be
handled;
o employee dissatisfaction and high turnover;
o high operational costs; and
o difficult to staff for cycles in call frequency.
We believe that outsourcing of call centers is gaining popularity in
North America and Europe and there is emerging a number of firms offering call
center outsourcing and management.
The virtual call center application we have developed would enable
customer service representatives to be located anywhere, without having to be
present at a central "brick and mortar" facility, and would allow a caller or
customer to reach a trained customer service representative at any time, from
almost anywhere. The customer service representative would also be able, if
necessary, to have secure access to a merchant's in-house database. Customer
data would be protected by a dedicated (non-shared) network that uses password
access and firewalls to provide security, yet would be fully accessible via a
computer network or through a toll-free dial up service.
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Our concept of a virtual call center is predicated on the ability to
provide the communication software that allows the customer service
representative, the buyer and the vendor to be linked together in real-time via
computers. The application that we have developed will enable a high volume of
inbound customer calls to be routed (without the caller knowing where the call
is going) to a customer service representative who could be located anywhere,
and who would answer and service the call. The customer service representative
would be able to accept calls, immediately access the merchant's database,
locate the appropriate product/service and process the caller's request
immediately. The virtual call center application is expected to provide the
necessary communications linkage and speed to allow all three parties to
interact in real-time.
We expect that our virtual call center application will provide the
technology that: (i) converts a call from analog (voice) to digital
(information) so it can be transported over a data line; (ii) routes a call from
the caller to the appropriate customer service representative based on the needs
of the caller and skills and availability of the customer service representative
(for example, a caller may indicate his or her preference for a customer service
representative that speaks a certain language and if such a representative is
available, the call will be routed to such a representative); (iii) provides the
customer service representative with access to the business' database, including
both product and caller specific information; and (iv) converts the call back
into analog so the caller can communicate with the customer service
representative, all of which would take place in a secure, supervised
environment. We use Voice Over-IP technology to convert calls from analog to
digital and back again. While we do not intend to develop the Voice Over-IP
software itself, we believe we have successfully selected appropriate vendors to
implement such technology. The application that we have developed would also
support automated call distribution (routing) and interactive voice response
(choosing options by pressing touch tone numbers on a phone), as well as
forward-looking call center technologies such as unified messaging (combining
voice mail, e-mail and facsimile) and web-based help desks.
The essential elements of the virtual call center application that we
have developed include:
o skills-based routing, which routes calls to the appropriate
customer service representative based on predetermined parameters,
such as language;
o secure access to a business' database, including both customer
specific and product information;
o conversion of the call to and from digital and analog; and
o training and supervision of customer service representatives.
The virtual call center application that we have developed is expected
to result in the support of multiple customers with a single customer service
representative from any geographical location. This would result in: (i) the
customer service representative not being limited to a traditional
"brick-and-mortar" call center building and (ii) the application enabling a
single customer service representative to service multiple vendors and access
corporate data from each vendor, regardless of any security measures, such as
firewalls, which the vendor may have selected as its corporate standard.
Virtual call centers would allow customer service representatives to
work from home, resulting in lower costs and greater employee satisfaction.
Using our technology, we expect that virtual call centers will be able to
provide all the features of a traditional call center, while reducing capital
and human resource overhead. Accordingly, businesses would be able to service
existing and new clients with better cost structures, while both enhancing
levels of service and reducing costly employee turnover.
We have completed the testing and demonstration phase of development
with respect to our virtual call center application and the application is now
commercially available. There can be no assurance that we will be able to
complete the deployment of our virtual call center application as scheduled or
at all because we may not be able to (i) raise the additional funds required to
complete such deployment and (ii) attract and retain technologically skilled
employees. In addition, there can be no assurance that a substantial market for
our virtual call center application will develop and grow.
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Distance Learning Application
Traditionally, in order for a business to provide training to its
employees, the business would bring an on-site instructor to the business'
offices and hold instructor-led classes. The drawbacks of holding such classes
include the difficulty and cost of assembling employees in a physical space and
the loss of productive work time. More recently, instructor-led training has
been augmented through the use of video conferencing, which has saved the
expense of physically assembling trainees, but still has many of the same
drawbacks as live on-site classes.
During the multimedia training boom of the early 1990's, CD-ROM became
the de-facto standard for content delivery. Businesses would purchase sufficient
software licenses to cover the number of employees to be trained. Each trainee
would then install a CD-ROM containing the course material on his or her
computer and commence the training on an individual basis. One problem with
CD-ROMs is that they do not permit the customization required by large,
technologically sophisticated and globally oriented companies. Additionally,
CD-ROM training does not provide the sense of community and shared learning
offered by the conventional classroom environment. While CD-ROMs increase
flexibility in terms of where and when employees can be trained, CD-ROMs do not
provide any interaction, monitoring or feedback, or the ability to customize
programs.
The factors driving people and businesses to seek training include:
o business requirements for staff to be certified in certain
technologies in order to assure performance and productivity;
o corporate downsizing, resulting in increased training requirements
for ex-staff as well as for employees who perform multiple job
tasks that require knowledge of various jobs;
o the proliferation of computers and networks throughout all levels
of organizations, increasing the number of employees who need
training; and
o the continuous introduction and evolution of new technologies,
contributing to the need for continuing education.
The distance learning application that we have developed will enable
learners to access digital content through a standard browser interface.
Trainees will be able to interact with subject matter to enhance and support
their learning endeavors. By having the tools to interact with career and
instructional experts, 24 hours a day, seven days a week, through e-mail, chat
rooms and other real-time collaborative tools across the Internet or a dedicated
network, we believe we will be able to offer a higher level of service, compared
to our potential competitors. We believe that through the distance learning
application we have developed, a business will be able to train its employees
with the best features of live training courses without the associated drawbacks
and at a much lower cost.
An important component of the distance learning application that we
have developed is the learning management system. The learning management system
consists of proprietary software developed by us that will support multiple
corporations and learning organizations that offer course content on-line. The
software was designed from the ground up with role-based security (different
users have access to different aspects of the network), multiple language
support and multi-enterprise billing and tracking facilities. Acting as a
"security blanket" around the content, the learning management system will
permit other organizations to embed their web-based training content without
fear of losing intellectual property over the Internet and still permit that
organization's employees to remotely access their training.
The distance learning application that we have developed would provide
access to:
o a group of tutors who are expert in their field and who would give
guidance to learners in real time;
o a team that gives learners guidance with career development;
o a library of high quality courses in single units or as part of a
curriculum; and
o software tools to help busy faculty members develop or customize
courses rapidly.
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Our distance learning application is expected to deliver skills-based
interactive multimedia content to corporate, academic and retail learners. We
expect the distance learning application to differentiate itself from other
training methodologies by delivering a complete learning solution over any
network, including the Internet. We expect that the technology we have developed
will provide content vendors with confidence that their intellectual property
will not be compromised and will allow self-paced learning to maximize personal
and career success of learners over their lifetime. We expect the distance
learning application to support the learner with live on-line telephone coaching
within a standard Internet browser (i.e., Netscape Navigator or Internet
Explorer) and enable the learner to access a browser for interactive learning,
producing a more collaborative learning experience. In addition, we expect the
application to enhance conventional classroom-based and current distance
learning delivery methods.
We have entered into agreements with ITC Learning Corporation pursuant
to which we purchased from ITC Learning Corporation the distribution rights for
all current and future ITC Learning Corporation education and training products
and will become ITC Learning Corporation's exclusive distance learning
technology distributor for the delivery of educational material for the State of
California. Pursuant to an agreement dated December 15, 1998, as amended by a
letter agreement dated March 12, 1999, between us and ITC Learning Corporation,
we purchased from ITC Learning Corporation the distribution rights for all
current and future ITC Learning Corporation education and training products in
consideration for $975,000 in respect of the first 150,000 user licenses and
based on a shared revenue formula for user licenses in excess of 150,000. We
paid the first $500,000 of the initial $975,000 purchase price in March 1999 and
the final $475,000 of the initial $975,000 purchase price in April 1999. In June
1999, we entered into an agreement with ITC Learning Corporation pursuant to
which we will become ITC Learning Corporation's exclusive distance learning
technology distributor for the delivery of educational material for the State of
California for consideration of $2,000,000. We paid this amount in three
installments in August, September and October 1999.
We have recently completed the testing and demonstration phase of
development with respect to our distance learning application and such
application is now commercially available. There can be no assurance that we
will be able to complete the deployment of our distance learning application as
scheduled or at all because we may not be able to (i) raise the additional funds
required to complete such deployment, (ii) enter into agreements with
appropriate content and network providers and (iii) attract and retain
technologically skilled employees. In addition, we cannot assure you that a
substantial market for our distance learning application will develop and grow.
To date we have entered into an agreement to provide products and services
totaling up to $1.2 million to be delivered during the next 12 months.
Hosting Third-party Software Applications
In addition to its customized applications, we host third-party
applications and support e-commerce initiatives. Our information hubs will
permit businesses to outsource certain components of their computing systems,
including e-mail messaging, remote backup of databases, software development and
testing platforms. By outsourcing these components, businesses would not have to
own or manage their own complex computer systems. This would also provide
businesses access to up-to-date, highly scalable, reliable and flexible
technology that they might otherwise not be able to afford due to the high
capital costs involved and the necessity of hiring, training and retaining
experienced computer personnel. We believe that businesses will employ selective
information technology outsourcing to increase competitiveness or gain access to
new resources and skills.
We have established a strategic alliance with Computer Associates
International Inc., (CA) Services designed to combine CA's robust eBusiness
infrastructure solutions and Enterprise Delivery Center (EDC) capabilities with
our application service provider services and technology. CA will be building an
EDC in our Calgary, Alberta office. We have committed to use $1,835,300 in
development services from CA during the first year of this relationship,
beginning July 1, 2000, on a best efforts basis. CA will provide us with various
personnel resources and pricing discounts on products and services. We believe
that as a result of this alliance, organizations around the world will be able
to cost- effectively leverage some of the most advanced eBusiness solutions
currently available.
-11-
<PAGE>
Our third party application hosting has been commercially available
since December 1999. However, there can be no assurance that a substantial
market for the hosting of third-party applications will develop and grow.
Marketing and Sales Strategy
Our marketing strategy will be to bundle our services with the existing
products and services of companies such as AT&T Canada, with whom we have a
non-binding letter of intent and with whom we are in the process of negotiating
an agreement; Sun Microsystems, Inc. under the ServiceProvider.com(TM) program;
CA, and companies whose third-party applications we will host. We believe that
the existing customer relationships will provide us with a sales advantage. We
will employ a small direct sales force of approximately 12 salespeople with both
selling and technical expertise, to support the initiatives of these companies
as well as to focus on a limited number of targeted customers/niche markets. In
addition, we plan to market our services through attendance at tradeshows,
advertising and articles in industry periodicals, referrals from customers and
our website. To date, we have had limited sales.
A major component of our marketing and sales strategy is the pricing
structure for our services which will be offered to customers on a per-use
basis, which will allow customers the ability to pay only for what they use,
thus converting a fixed cost into a variable one. We believe that this flexible
pricing strategy will be very attractive to potential customers.
Competition
The market for our products and services is highly competitive and
subject to rapid technological change. There are many companies that act as
application service providers, offering third-party application hosting to their
customers, including U.S. Internetworking Inc., FutureLink Corp. and Corio Inc.
Our management does not know of any other company currently offering the virtual
call center and distance learning applications developed by InfoCast
Corporation. With respect to the distance learning application that we are
developing, competition currently consists of many companies offering learning
via CD-ROM and the Internet, including SmartForce, DigitalThink, Inc. and
click2learn.com, inc. With respect to the virtual call center application that
we are developing, competition currently consists of the many traditional brick
and mortar call centers, including Convergis Corp. and APAC Customer Services
Inc. We believe that our ability to compete depends on many factors both within
and beyond our control, including the success of our marketing and sales efforts
and those of our competitors, the price and reliability of our products and
services and those of our competitors and the timing and market acceptance of
our products and services and those of our competitors. Competitors may quickly
deploy products and e-commerce technology that could limit our expansion. We
expect competition to increase in the future. Many of our potential competitors
have substantially greater financial, technical and marketing resources than we
do. Increased competition could materially and adversely affect our business,
financial condition and results of operations. We cannot assure you that we will
be able to compete successfully.
Intellectual Property and Other Proprietary Rights
Our success is dependent in part on intellectual property rights,
including information technology, some of which is proprietary to us such as our
software that comprises the learning management system, a filtering engine, a
corporate hosted e-mail service that integrates our filtering engine with
industry standard e-mail and directory servers from Netscape and Sun
Microsystems, a methodology that allows us to rapidly host applications from
independent software vendors on our information hub, and various software
integration tools. We rely on a combination of nondisclosure agreements,
technical measures, trade secret and trademark laws to protect our proprietary
rights. We do not presently hold any patents for our existing products or
services and presently have no patent applications pending. We have entered into
confidentiality agreements with most of our employees, and anticipate that any
future employees will also enter into such agreements. We also attempt to limit
access to and distribution of proprietary information. There can be no assurance
that the steps taken by us in this regard will be adequate to deter
misappropriation of proprietary information or that we will be able to detect
unauthorized use or take appropriate steps to enforce intellectual property
rights. In addition, there can be no assurance that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technology. Further, the laws of many foreign countries do not
-12-
<PAGE>
protect our intellectual property rights to the same extent as the laws of the
United States. Our failure to protect our proprietary information could have a
material adverse effect on our business, financial condition and results of
operations.
From time to time, third parties may assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies that
are used by us. We may need to take legal action to defend ourselves against
claimed infringements of the rights of others or to determine the scope and
validity of the proprietary rights of others. We may also need to take legal
action to enforce and protect our trade secrets and our other intellectual
property rights. Any such litigation could be costly and cause diversion of
management's attention, either of which could have a material adverse effect on
our business, financial condition and results of operations. Adverse
determinations in such litigation could result in the loss of our proprietary
rights, subject us to significant liabilities (including possible
indemnification of our customers), require us to secure licenses from third
parties or prevent us from manufacturing or selling our products or services,
any one of which could have a material adverse effect on our business, financial
condition and results of operations. We have not been a party to any such
litigation to date. We have not conducted a formal patent search relating
generally to the technology used in our products or services. In addition, since
patent applications in the United States are not publicly disclosed until the
patent issues and foreign patent applications generally are not publicly
disclosed for at least a portion of the time that they are pending, applications
may have been filed which, if issued as patents, would relate to our products or
services. Software comprises a substantial portion of the technology in our
products. The scope of protection accorded to patents covering software-related
inventions is evolving and is subject to a degree of uncertainty that may
increase the risk and cost to us if we discover the existence of third-party
patents related to our software products or if such patents are asserted against
us in the future. Patents have been granted recently on fundamental technologies
in software, and patents may issue which relate to fundamental technologies
incorporated into our products or services.
While we employ proprietary software technology and algorithms and
conduct ongoing research and development, our future success will depend in part
upon our ability to keep pace with advancing technology, evolving industry and
changing customer requirements in a cost-effective manner. There can be no
assurance that our proprietary software technology and algorithms will not be
rendered obsolete by other technology incorporating technological advances
designed by competitors that we are unable to incorporate into our products or
services in a timely manner.
The market for our products and services is characterized by rapidly
changing technologies. The rapid development of new technologies increases the
risk that current or new competitors could develop products or services that
would reduce the competitiveness of our products or services. Our success will
depend to a substantial degree upon our ability to respond to changes in
technology and customer requirements. This will require the timely selection,
development and marketing of new products or services and enhancements on a
cost-effective basis. The development of new, technologically advanced products
or services is a complex and uncertain process, requiring high levels of
innovation. The introduction of new and enhanced products or services also
requires that we manage transitions from older products or services in order to
minimize disruptions. There can be no assurance that we will be successful in
developing, introducing or managing the transition to new or enhanced products
or services or that any such products or services will be responsive to
technological changes or will gain market acceptance. Our business, financial
condition and results of operations would be materially adversely affected if we
were to be unsuccessful, or to incur significant delays, in developing and
introducing such new products, services or enhancements.
Employees
At May 31, 2000, we had 50 full-time employees. None of our employees
is represented by a collective bargaining agreement nor have we experienced any
work stoppage. We consider our relations with our employees to be good.
-13-
<PAGE>
GLOSSARY
Application Service Provider (ASP): An application service provider is
a company that offers individuals or enterprises electronic access to
application programs and related services that would otherwise have to
be located in their own personal or enterprise computers.
Architecture: In the context of computers, servers and networks,
architecture is a term applied to both the process and the outcome of
thinking out and specifying the overall structure, logical components,
and the logical interrelationships of a computer, a server, their
operating systems, and a network.
Automated Call Distribution: Automated Call Distribution involves the
use of a telephone facility that manages incoming calls and handles
them based on the number called and an associated database of handling
instructions. Companies offering sales and service support use this
function to validate callers, make outgoing responses or calls, forward
calls to the right party, allow callers to record messages, gather
usage statistics, balance the use of phone lines, and provide other
services.
Browser: A program that allows a person to read hypertext. A browser
gives some means of viewing the contents of nodes (or "pages") and
navigating from one node to another. Netscape Navigator is an example
of a browser for the World Wide Web.
Call Center: A call center is a central place where customer and other
telephone calls are handled by an organization, usually with some
amount of computer automation. Typically, a call center has the ability
to handle a considerable volume of calls at the same time, to screen
calls and forward them to someone qualified to handle them, and to log
calls. Call centers tend to be used by large organizations that use the
telephone to sell or service products and services.
CD-ROM: CD-ROM technology is a format and system for recording,
storing, and retrieving electronic information on a compact disk that
is read using a laser optical drive.
Distance Learning: A type of education where students work on their own
at home or at the office and communicate with faculty and other
students via e-mail, electronic forums, videoconferencing and other
forms of computer-based communication.
Firewall: A firewall is a set of related programs, located on the
server functioning as an entry point into a network, that protects the
resources of that network from users from other networks.
Information Technology (IT): Information Technology is an umbrella term
used to describe all forms of technology used to create, store,
exchange, and use information in its various forms.
Interactive Voice Response: Interactive voice response "gives data a
voice." By using the touch tones on a telephone keypad, or in some
cases, the spoken voice, a caller can request, manipulate, and in some
cases modify data that resides on a "host" database somewhere. Typical
applications include: banking by phone, checking airline reservations
by phone, checking credit card balance by phone and registering for
college courses by phone. The technology is "interactive" because the
user is prompted for information by the system. For example, in a
banking by phone application, the system will ask a caller to enter its
account number from the telephone keypad. After the caller enters its
number, the system interacts with the caller further by giving the
caller additional options.
Interface: A boundary across which two systems communicate. An
interface might be a hardware connector used to link to other devices
or it might be a convention used to allow communication between two
software systems. Often there is some intermediate component between
the two systems that connects their interfaces together.
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<PAGE>
Java: Java is a programming language expressly designed for use on the
Internet. Java can be used to create complete applications that may run
on a single computer or be distributed among servers and clients in a
network. It can also be used to build small application modules, or
applets, for use as part of a web page. Applets make it possible for a
web page user to interact with the page.
Netra T-1 Server: A computer server developed by Sun Microsystems Inc.
which is designed for and aimed specifically at the needs of Internet
and application service providers.
Network: Any system designed to provide one or more access paths for
communications between users at different geographic locations.
Communications networks may be designed for voice, text, data,
facsimile image and/or video. They may feature limited access (private
networks) or open access (public networks) and will employ whatever
switching and transmission technologies are appropriate.
Operating System (OS): An operating system is the program that, after
being initially loaded onto the computer, manages all the other
programs in a computer. Examples of operating systems include DOS and
Windows.
Server: A server is a computer program that provides services to other
computer programs in the same or other computers. The computer that a
server program runs in is frequently referred to as a server (though it
may contain a number of server and client programs).
Sun Solaris: Sun Solaris is Sun Microsystems Inc.'s version of the UNIX
operating system, including networking software, a windows environment
and a graphical user interface.
Unified Messaging: The communication application that combines e-mail,
voicemail and facsimile.
Virtual: The term virtual means the quality of effecting something
without actually being that something.
Virtual Private Network (VPN): A virtual private network is a private
data network that makes use of the public telecommunication
infrastructure, maintaining privacy through the use of various security
procedures such as data encryption.
Voice Over-IP (VoIP): Voice Over Internet Protocol is a term used for a
set of facilities and programs that manage the delivery of voice
information, such as telephone calls, over the Internet.
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<PAGE>
Item 2. Properties
Our corporate headquarters are located in 2,190 square feet of leased
office space in Chicago, Illinois and our operational headquarters are located
in 6,457 square feet of leased office space in Toronto, Canada. HomeBase Work
Solutions has offices located in 6,400 square feet of leased office space in
Calgary, Canada. Our lease in Toronto, Canada expires in May 2004, our lease in
Chicago, Illinois expires in March 2002 and the HomeBase Work Solutions lease in
Calgary expires in August 2005. Along with our subsidiaries, we also lease other
facilities that are not material to our business. We believe that our existing
facilities are adequate for our needs for the foreseeable future and that if we
need additional space, it will be available on favorable terms.
Item 3. Legal Proceedings
We are not currently involved in any material legal proceedings. From
time to time, however, we may be subject to claims and lawsuits arising in the
normal course of business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the holders of the Company's
Common Stock during the fourth quarter of the Company's fiscal year ended March
31, 2000.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock is currently traded on the OTC Bulletin
Board under the symbol "IFCC." Prior to changing its name to InfoCast
Corporation on December 31, 1998, its Common Stock traded on the OTC Bulletin
Board under the symbol "GNRS." The following table sets forth the high and low
prices on the OTC Bulletin Board for the periods indicated, as reported by the
OTC Bulletin Board (as adjusted to reflect a 2 for 1 stock split effected on
October 20, 1998). The Company's Common Stock commenced trading on August 7,
1998. Such prices represent quotations between broker-dealers, do not include
retail mark-ups, mark-downs or commissions, and may not necessarily reflect
prices in actual transactions.
High Low
---- ---
1998
Third Quarter (August 7, 1998 to September 30, 1998)...... $ 0.63 $0.25
Fourth Quarter (October 1, 1998 to December 31, 1998)..... $ 5.25 $0.19
1999 (January 1, 1999 to March 31, 1999)
First Quarter............................................. $ 7.00 $4.25
2000 (April 1, 1999 to March 31, 2000)
First Quarter............................................. $10.12 $4.50
Second Quarter............................................ $13.00 $7.00
Third Quarter............................................. $ 8.88 $5.56
Fourth Quarter............................................ $10.25 $5.81
Holders
As of June 1, 2000, there were 244 holders of record of the Company's
Common Stock.
Dividends
The Company has not paid cash dividends on its Common Stock since its
inception and does not intend to pay cash dividends on its Common Stock for the
foreseeable future. The Company intends to reinvest future earnings, if any, in
the development and expansion of its business. The declaration of dividends in
the future will be at the election of the Board of Directors and will depend
upon the Company's earnings, capital requirements and financial position,
general economic conditions and other relevant factors.
-17-
<PAGE>
Sale of Unregistered Securities
The following unregistered securities were issued by the Company during
the quarter ended March 31, 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>
January 1, 2000 Warrants 12,500 $7.62
January 27, 2000 Common shares 200,000 $ Issued under terms of Minutes of
Settlement with ACT
January 28, 2000 Common Shares 5,000 $ Exchange of InfoCast Canada
exchangeable shares into InfoCast
common shares
February 1, 2000 Options 175,000 $1.00 Granted to a consultant under the
1998 Stock Option Plan
February 11, 2000 Warrants 56,000 $5.00
February 18, 2000 Options 20,000 $7.00 Granted to an employee under the
1999 Stock Option Plan
February 24, 2000 Common shares 500,000 $ Received 150,000 common shares of
a publicly-traded company as
consideration
February 29, 2000 Options 100,000 $8.63 Granted to an employee under the
1999 Stock Option Plan
March 3, 2000 Common shares 1,395,699 $ Exchange of InfoCast Canada
exchangeable shares into InfoCast
common shares
March 16, 2000 Common shares 5,000 $ Exchange of InfoCast Canada
exchangeable shares into InfoCast
common shares
March 20, 2000 Common shares 73,139 $ Exchange of InfoCast Canada
exchangeable shares into InfoCast
common shares
March 30, 2000 Common shares 10,347 $ Exchange of InfoCast Canada
exchangeable shares into InfoCast
common shares
March 31, 2000 Share Purchase 388,889 $7.50 As part of the convertible
Warrants subordinated debenture financing
March 31, 2000 Agent Share Purchase 97,222 $7.50 As part of the convertible
Warrants subordinated debenture financing
</TABLE>
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<PAGE>
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.
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<PAGE>
Item 6. Selected Financial Data
The selected financial data set forth below are derived from our
financial statements included elsewhere in this Report and are qualified by
reference to and should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report. The financial statements as of and for the year ended March 31, 2000,
the three months ended March 31, 1999, the year ended December 31, 1998 and the
period from July 29, 1997 (inception) to December 31, 1997 have been audited by
Ernst & Young LLP, independent certified public accountants. The information for
the three months ended March 31, 1998 is unaudited and, in the opinion of our
management contains all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of our financial position and
results of operations at such dates and for such periods. The historical results
for the periods ended December 31, 1997 and 1998 and March 31, 1998 are those of
Virtual Performance Systems. The historical results are not necessarily
indicative of the results of operations to be expected in the future.
<TABLE>
<CAPTION>
Year ended Period from
March 31, 2000 Three months ended March 31, July 29, 1997
-------------- ---------------------------- Year ended (inception) to
Statement of 1999 1998 December 31, 1998 December 31, 1997
---- ---- ----------------- -----------------
Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues................... $ 305,754 $ -- $43,446 $ 43,446 $ 3,508
General,
administrative and
selling expense............ $ 7,391,128 $ 635,334 $42,494 $375,302 $ 47,954
Stock option
compensation
expense.................... $13,351,908 $2,256,938 $ -- $ -- $ --
Research and
development
expense.................... $ 5,186,265 $ 162,914 $19,703 $ 88,180 $ 51,257
Interest and
loan fees.................. $ 1,913,482 $ 23,562 $ -- $ -- $ --
Amortization............... $ 4,315,180 $ 4,144 $ -- $ -- $ --
Depreciation............... $ 495,401 $ 5,507 $ 870 $ 3,836 $ 458
Total expenses............. $32,653,364 $3,088,399 $63,067 $467,318 $ 99,669
Interest income............ $ 132,057 $ 4,478 $ -- $ -- $ --
Net loss
for the period............. $31,151,184 $3,083,921 $19,621 $423,872 $ 96,161
Net loss per share......... $ 1.37 $ 0.27 $478.56 $ 0.55 $ 2,345
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
As of March 31, As of December 31,
---------------------------------------------------- ---------------------------------
Balance Sheet Data: 2000 1999 1998 1998 1997
---- ---- ---- ---- ----
Cash and cash
<S> <C> <C> <C> <C> <C>
equivalents................ $ 3,637,931 $3,092,445 $ -- $ 25,595 $ 301
Working capital............ $ 5,823,306 $2,840,129 $(126,785) $(564,601) $(106,438)
Total assets............... $34,569,481 $4,025,076 $ 47,510 $ 143,467 $ $28,604
Long term debt and
obligations under
capital leases,
excluding current
portion.................... $ 4,302,836 $ -- $ -- $ -- $ --
Stockholders'
equity..................... $22,295,007 $3,493,112 $(115,376) $(496,667) $ (94,459)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The consolidated financial statements of the Company are the continuing
financial statements of Virtual Performance Systems, Inc., a development stage
company and an Ontario corporation incorporated on July 29, 1997. Virtual
Performance Systems had a 100% interest in, and subsequently merged with,
Cheltenham Technologies Corporation ("Cheltenham Technologies"), an Ontario
corporation. Virtual Performance Systems has a 100% interest in Cheltenham
Interactive Corporation ("Cheltenham Interactive"), an inactive Ontario
corporation, and Cheltenham Technologies (Bermuda) Corporation ("Cheltenham
Bermuda"), a Barbados corporation that owns certain intellectual property. On
January 29, 1999, Virtual Performance Systems acquired the net assets of the
Company (formerly known as Grant Reserve Corporation), a United States
non-operating company traded on the Nasdaq OTC Bulletin Board, which had a 100%
interest in InfoCast Canada Corporation ("InfoCast Canada"). After the
acquisition, the accounting entity continued under the name of InfoCast
Corporation. InfoCast Corporation, InfoCast Canada, Virtual Performance Systems,
Cheltenham Technologies, Cheltenham Interactive and Cheltenham Bermuda are
collectively referred to in this section as the "Company."
The following discussion should be read in conjunction with our
historical financial statements and notes thereto included elsewhere in this
Report.
This 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.
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<PAGE>
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 and warrants to
purchase Common Stock in a series of private placements, the issuance of
convertible debentures and shareholder loans. On a long term basis, we will need
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.
We acquired HomeBase Work Solutions in May 1999 in exchange for
3,400,000 shares of InfoCast Canada, which shares are exchangeable into Common
Stock of the Company. The HomeBase Work Solutions acquisition provided us with
the core technology for our information hub strategy. The acquisition also
introduced third-party application hosting initiatives to the Company which will
be hosted on our information hubs. The virtual call center application and
distance learning library developed by us will also be hosted on the information
hubs.
Effective for the period ended March 31, 1999 we changed our fiscal
year end from December 31 to March 31. Therefore, financial statements have been
prepared for the three month transition period ended March 31, 1999.
Results of Operations
Year ended March 31, 2000 vs. year ended March 31, 1999
Revenue increased from zero for the year ended March 31, 1999 to
$305,754 for the year ended March 31, 2000 as we began to earn hosting and
distance learning revenues, received revenue from the sale of computer equipment
and performed miscellaneous consulting services during the period ended March
31, 2000.
Interest income increased from $4,478 for the year ended March 31, 1999
to $132,057 for the year ended March 31, 2000. The proceeds received from the
private placements in 1999 were invested in short term deposits which generated
interest income for us during the year ended March 31, 2000, consistent with our
investment policy.
General, administrative and selling expenses increased from $968,142
for the year ended March 31, 1999 to $7,391,128 for the year ended March 31,
2000. The consolidation of the operations of HomeBase Work Solutions for the
period May 13, 1999 to March 31, 2000 accounted for $382,000 of the increase. We
had seven more employees involved in general, administrative and selling
functions in the year ended March 31, 2000 than for the same period ended March
31, 1999, contributing approximately $540,000 to the increase in expenses. We
paid consulting fees to three additional consultants during the year ended March
31, 2000 compared to the same period ended March 31, 1999 resulting in an
increase in consulting fees of approximately $1,214,000 for the year ended March
31, 2000. Investor relations costs of $1,143,465 were incurred for the year
ended March 31, 2000. Additional rent expenses of $127,000 were incurred for the
two U.S. offices that were not open in September 1998 and the expanded Toronto
office space. We expensed $644,000 for warrants issued for services during the
year ended March 31, 2000 and expensed an additional $439,800 related to common
stock issued for services during the year ended March 31, 2000. We incurred
sales and marketing expenses related to the Call Center Learning Solutions
On-Line Inc. joint venture of $198,000 during the year ended March 31, 2000.
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<PAGE>
Stock option compensation expense increased from $2,256,938 for the
year ended March 31, 1999 to $13,351,908 for the year ended March 31, 2000. This
increase is due to the amortization of the deferred compensation amount
resulting from the grant of stock options to various individuals involved in the
management and operations of the Company.
Research and development expenses increased from $231,391 for the year
ended March 31, 1999 to $5,186,265 for the year ended March 31, 2000. This
increase is primarily due to continued efforts to develop and expand our product
offerings. We incurred expenses of approximately $607,000 from the write off of
advances made to ACT which had been used to fund development expenses related to
the electronic conversion of courseware in the year ended March 31, 2000. We
also wrote off a $95,000 receivable from ACT to research and development expense
during the year ended March 31, 2000. We also expensed $1,337,500 which was the
value attributed to the 200,000 common shares issued to two ACT shareholders
during the year ended March 31, 2000. The consolidation of the operations of
HomeBase Work Solutions for the year ended March 31, 2000 accounted for
$1,639,000 of the increase. We had nine more employees involved in research and
development functions in the year ended March 31, 2000 than for the same period
ended March 31, 1999, contributing approximately $663,000 to the increase in
expenses. We paid consulting fees to the same number of consultants during the
year ended March 31, 2000 compared to the same period ended March 31, 1999 but
incurred approximately $71,000 in additional consulting fees for the year ended
March 31, 2000.
Interest and loan fees increased from $23,562 for the year ended March
31, 1999 to $1,913,482 for the year ended March 31, 2000. The convertible
subordinated debentures that were issued on March 30, 2000 have a conversion
feature that was in-the-money and exercisable at the date of issuance resulting
in the intrinsic value of the feature of $1,913,482 being charged to interest
expense at the time the debentures were issued.
Amortization expenses increased from $4,144 for the year ended March
31, 1999 to $4,315,180 for the year ended March 31, 2000. Amortization of the
acquired intellectual property and goodwill resulting from the acquisition of
HomeBase Work Solutions accounted for the majority of the increase in the
amortization expense for the year.
Depreciation expenses increased from $8,473 for the year ended March
31, 1999 to $495,401 for the year ended March 31, 2000. This increase is a
result of the acquisition of additional capital assets between April 1, 1999 and
March 31, 2000.
Equity in loss of joint venture increased from zero for the year ended
March 31, 1999 to $164,736 for the year ended March 31, 2000. During the year
ended March 31, 2000, we became shareholders in a new company that is developing
a web-enabled trading business model for crude oil and natural gas liquids and
other products. As at March 31, 2000, our ownership in this company was 34.48%
on a fully diluted basis.
Deferred income taxes increased from zero for the year ended March 31,
1999 to $1,229,105 for the year ended March 31, 2000 as a result of the draw
down of the deferred income tax liability created by the purchase of HomeBase
Work Solutions by the Company in respect of the difference in the tax and
accounting basis of various intellectual property assets.
Year ended December 31, 1998 compared to the 156 day period ended December 31,
1997
Revenue increased from $3,508 for the 156 day period ended December 31,
1997 to $43,446 for the year ended December 31, 1998. This increase is due to
the timing of the provision of one-time computer programming services, as we
began providing these services at the end of 1997 and continued to provided
these services in the first calendar quarter of 1998. In early 1998 we
discontinued providing these consulting services.
General, administrative and selling expenses increased from $47,954 for
the 156 day period ended December 31, 1997 to $375,302 for the year ended
December 31, 1998. This increase is due to the expenses being incurred for the
full year ended December 31, 1998 compared to a 156 day period ended December
31, 1997 and the continuing expansion of business operations. Consulting fees
were higher in 1998 as we engaged additional consultants to assist
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<PAGE>
in building the management team and enhancing the business model and
infrastructure of the Company. We incurred higher legal costs in 1998 as a
result of legal services rendered during 1998 for the reverse takeover
transaction, as well as for the HomeBase Work Solutions acquisition, both of
which were completed in 1999.
Research and development expenses increased from $51,257 for the 156
day period ended December 31, 1997 to $88,180 for the year ended December 31,
1998. This increase is due to the expenses being incurred for the full year
ended December 31, 1998 compared to a 156 day period ended December 31, 1997 and
the continuing expansion of our research and development efforts.
Depreciation expenses increased from $458 for the 156 day period ended
December 31, 1997 to $3,836 for the year ended December 31, 1998. This increase
is a result of depreciation being incurred for the full year ended December 31,
1998 compared to a 156 day period ended December 31, 1997 and the acquisition of
additional capital assets during the year ended December 31, 1998.
Liquidity and Capital Resources
Inception to March 31, 2000
At March 31, 2000, we had cash and cash equivalents of $3,637,931 and
working capital of $5,823,306. Our cash and cash equivalent position has been
generated through a series of equity and debt offerings net of development stage
expenditures. To date, we have generated limited revenues.
From our inception on July 29, 1997 to January 29, 1999, Virtual
Performance Systems issued 3,624,100 shares of Common Stock for cash proceeds of
Cdn.$3,732 (or $2,586 in U.S. dollars as of December 31, 1999). Pursuant to the
reverse takeover transaction on January 29, 1999, the shareholders of Virtual
Performance Systems sold their 100% interest in Virtual Performance Systems to
the Company in consideration for 1,500,000 shares of InfoCast Canada, which
shares are exchangeable into Common Stock of the Company for no additional
consideration. Such exchangeable shares have been deemed as shares of Common
Stock of the Company because they are the economic equivalent of the Company's
Common Stock. At the time of the reverse takeover, the Company (formerly Grant
Reserve Corporation) had 13,580,000 shares of Common Stock outstanding which
continued as shares of Common Stock of the continuing entity. Subsequent to the
reverse takeover and up to March 31, 2000, we issued 3,023,333 shares of Common
Stock at $1.50 per share in a private placement in March 1999, 60,000 shares of
Common Stock in consideration for consulting services in March 1999, 420,000
shares of Common Stock at $5.00 per share in a private placement in June 1999,
1,879,000 shares of Common Stock at $5.50 per share in a private placement from
July 1999 to November 1999. We have raised cash proceeds of $15,478,400 from
these private placements, net of share issuance costs.
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 March 31, 2000, these 130,000 shares had a
market value of $3,900,000. At May 31, 2000, the market value of these shares
had decreased to $1,852,500.
In March 2000 we issued 3,500 units of convertible subordinated
debentures at $1,000 per unit for proceeds of $3,225,000, net of commissions. 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.
From our inception, we have used $10,786,000 for operating activities
before changes in non-cash working capital balances mainly as a result of
general, administrative and selling and research and development expenditures,
net of incidental revenues. We used a further $2,142,000 for the purchase of
capital assets, $2,975,000 on the purchase of distribution rights and $323,000
on the placement of deposits.
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<PAGE>
We relied on term loans from shareholders, directors and officers
during the period from our inception to the completion of the March 1999 private
placement to fund our operations. These loans were repaid as at June 30, 1999
from the proceeds of the private placements. We expect to use our existing cash
and cash equivalents for the following:
- We plan to continue to invest in the research and development of our
information hub products and services and anticipate spending
approximately $5,800,000 on these efforts from April 1, 2000 to March
31, 2001. We believe that the revenue we expect to generate and
related cash collections from sales of information hub products and
services will help fund the cash requirements of this division, but
there can be no assurance that it will do so.
- We will use approximately $2,000,000 from April 1, 2000 to March 31,
2001 to deploy and enhance our virtual call center application. We
believe that the revenue we expect to generate and related cash
collections from sales of the virtual call center application will
help fund the cash requirements of this application, but there can be
no assurance that it will do so.
- We expect to use approximately $600,000 from April 1, 2000 to August
31, 2000 in the development, deployment and electronic conversion of
courseware for the distance learning application. We believe that the
revenue we expect to generate and related cash collections from sales
of the distance learning application will help fund the cash
requirements of this application, but there can be no assurance that
it will do so.
- We will use approximately $6,000,000 to fund the post-acquisition
expenses of i360.
- We will use the 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 May 2001.
On a long term basis, we will need 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.
Year 2000 Compliance
Prior to January 1, 2000, there was a great deal of concern regarding
the ability of computers to adequately distinguish 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems.
To date, we have not experienced such problems. Computer experts have
warned, however, that there may still be residual consequences of the change in
centuries. For example, some software programs may have difficulty resolving the
so-call "century leap year" algorithm which will also occur during the Year
2000. Any such residual consequences could result in hardware failure, the
corruption or loss of data contained in our internal information system, and
failures affecting our key vendors, suppliers or customers. This in turn may
lead to legal action, and may otherwise also have a material adverse effect on
our business, results of operations or financial condition.
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<PAGE>
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.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements. SAB No. 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company will incorporate the guidance of SAB No. 101 in the first quarter of
fiscal 2001. Management has not yet determined the impact that SAB No. 101 will
have on the financial position or results of operations of the Company.
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<PAGE>
Item 7A. 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. Market risk is the
potential loss arising from adverse changes in market rates and prices, such as
foreign currency exchange 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 and
April 2000, in the amount of $6.0 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.
Item 8. Financial Statements and Supplementary Data
See the Company's Financial Statements listed in the accompanying Index
to Financial Statements on Page F-1 herein. Information required for financial
schedules under Regulation S-X is either not applicable or is included in the
financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company, and their ages and
positions with the Company are as follows:
Name Age Position
---- --- --------
Darcy Galvon 43 Co-Chairman of the Board, Director
A. Thomas Griffis 58 Co-Chairman of the Board, Director
James Leech 53 President, CEO and Director
Herve Seguin 49 Chief Financial Officer and Secretary
Jennifer Scoffield 30 Vice President, Finance and
Administration
Carl Stevens 53 President, Virtual Call Centers and
e-Learning
Michael Sheehan 58 Executive Vice President, Virtual Call
Center, Director
Richard Shannon 54 President and CEO of HomeBase Work
Solutions Ltd.
Alexander "Sandy" Walsh 33 Chief Technology Officer
Glen Allmendinger 46 Director
George Shafran 73 Director
Jeffrey S. Spindler 37 Director
The officers of the Company are elected by the Board of Directors at
the first meeting after each annual meeting of the Company's stockholders, and
hold office until their death, until they resign or until they have been removed
from office. The Board of Directors has established an audit committee
consisting of George Shafran, Jeffrey Spindler and Glen Allmendinger.
The following is a brief summary of the background of each director and
executive officer of the Company:
Mr. Galvon has been Co-Chairman and a director of the Company since May
13, 1999. In 1986, Mr. Galvon founded Sun MicroSystems, Inc.'s Western Canada
office in Calgary, Alberta, where he was responsible for covering the
transportation, utilities, education, manufacturing, retail, entertainment and
software developers in Calgary and the entire province of Saskatchewan. From
1995 to the present, Mr. Galvon served as a director of Sun Computer Systems
Inc. Alberta Ltd. and HomeBase Work Solutions Ltd., which was acquired by the
Company in May 1999, and is currently a subsidiary of the Company. Mr. Galvon is
also a director of Facet Petroleum Solutions, Inc., with which HomeBase Work
Solutions has entered into a licensing and distribution agreement. He is also
Chairman of the Board of HomeBase Work Solutions.
Mr. Griffis has been the Chairman of the Board and a director of the
Company since January 12, 1999 and a Co-Chairman since May 13, 1999. Since 1986,
Mr. Griffis has been the founder and sole owner of Griffis International
Limited, a management consulting and business development firm. Griffis
International Limited has focused its activities on the structuring, financing
and management of emerging companies, particularly in the natural resource and
high-tech sectors.
Mr. Leech has been President, Chief Executive Officer and a director of
the Company since September 4, 1999. From 1996 until September 1999, Mr. Leech
was Vice Chairman and Director at Kasten Chase Applied Research Limited, a
publicly-traded data networking and wireless technology company, where he was
responsible for corporate strategy, finance, administration and production. From
1993 to 1996, Mr. Leech was President, Chief Executive Officer
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<PAGE>
and Director of Disys Corporation, a publicly-traded wireless technology
company, which was later merged into Kasten Chase Applied Research Limited.
Mr. Seguin has been the Chief Financial Officer of the Company since
January 4, 2000. and Secretary since May 17, 2000. From 1993 to 1999, Mr. Seguin
was the Vice President of Finance and the Chief Financial Officer of Promis
Systems Corporation Ltd. (now PRI Automation, Inc.), a software development
company, where he assisted in several rounds of public equity financing.
Ms. Scoffield has been the Vice President, Finance and Administration
of the Company since July 7, 1999. From February 1997 to June 1999, Ms.
Scoffield held various positions at PRI Automation Inc. (formerly Promis Systems
Corporation Ltd.), a software development company, most recently as Director,
Financial Projects. From August 1996 to January 1997, Ms. Scoffield was Manager
of Finance for Pet Valu Canada, Inc., a retail pet supply company. From August
1993 to August 1996, Ms. Scoffield was an accountant with Ernst & Young in the
Entrepreneurial Services group where she obtained her Chartered Accountant
designation.
Mr. Stevens has been President of Virtual Call Centers and e-Learning
since December 1999. From February 1997 to November 1999, Mr. Stevens held
various positions at ITC Learning Corporation, most recently as President and
Chief Executive Officer. From 1971 to November 1996, Mr. Stevens held a number
of positions at IBM, most recently as Program Director for the Public Sector. In
that capacity, Mr. Stevens was responsible for the sale of personal computers to
the higher education, kindergarten, grammar school and high school markets, as
well as to federal, state and local governments.
Mr. Sheehan has been Executive Vice President of the Company's virtual
call center division since July 6, 1999 and a director of the Company since
January 12, 1999. He served as the Chief Executive Officer of the Company from
January 12, 1999 to July 6, 1999. From 1960 to 1998, Mr. Sheehan held a number
of positions at AT&T, most recently as Director of Call Center Solutions for
AT&T Labs. At AT&T, Mr. Sheehan was responsible for managing the building of
complex telecommunication systems and networks and helped create strategic
marketing plans for introducing new AT&T services and products.
Mr. Shannon has been the President and Chief Executive Officer of
HomeBase Work Solutions Ltd. since March 1999. Since 1990, Mr. Shannon has been
a founding shareholder and managing director of Baycor Capital, Inc., a merchant
bank based in Calgary, Alberta, as well as a founding shareholder and director
of Nevada Bob's Canada Inc., a publicly-traded golf retailer with 85 company
stores and 200 franchised stores located in 10 countries.
Mr. Walsh has been the Chief Technology Officer of the Company since
May 1999. From March 1998 to April 1999, Mr. Walsh was Director of Research and
Development - Business Intelligence Group for Hummingbird Communications Ltd., a
data networking company where he led product conceptualization and architectural
design and worked with industry partners to integrate complementary
technologies. From March 1994 to February 1998, Mr. Walsh was Project Lead for
Andyne Computing Limited, a data networking company of Kingston, Ontario. Prior
to joining Andyne Computing Limited, Mr. Walsh held various positions in the
software design field.
Mr. Allmendinger has been a director of the Company since May 17, 2000.
Mr. Allmendinger is the founder and CEO of Harbor Research, a strategic
consulting and business development firm based in Boston and San Francisco. Mr.
Allmendinger has been responsible for managing Harbor Research and its
consulting and research activities since its inception in 1983. Mr. Allmendinger
is a director of Stratepshere.com (a business intelligence portal service based
in Boston), DataSweep, Inc. (a supplier of B2B supply chain software in the
computing and electronics sectors based in San Jose) and Cambridge Studios (an
eLearning content and tools firm based in Cambridge).
Mr. Shafran has been a director of the Company since February 8, 1999.
Mr. Shafran has been the President of Geo. P. Shafran & Associates, Inc., a
management, marketing and investment consulting firm, for at least the last five
years. Mr. Shafran serves as Senior Consultant for The High Performance Group
and as an associate with the
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<PAGE>
Technical Analysis Corporation. Mr. Shafran is vice-chairman of The Heritage
Bank and a director of NVR Mortgage, Missing Kids, International and is chairman
of the Advisory Board of the AAA Potomac. Mr. Shafran also serves as a
consultant to various other companies. He currently serves on President
Clinton's Legislative Council of the U.S. Chamber of Commerce and on the Board
of the National Capital Chapter of the American Red Cross.
Mr. Spindler has been a director of the Company since January 2000. Mr.
Spindler has been a partner with Olshan Grundman Frome Rosenzweig & Wolosky LLP,
a New York City law firm, since January 1997. From November 1993 to December
1996, Mr. Spindler was associated with Olshan Grundman Frome Rosenzweig &
Wolosky LLP. Prior to that time and since September 1988, he was associated with
Cahill Gordon & Reindel, also a New York City law firm. Mr. Spindler is an
attorney specializing in corporate matters including finance, securities
regulation and mergers and acquisitions.
Item 11. Executive Compensation
The following table sets forth, for the Company's 2000 fiscal year, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
other than the CEO who were executive officers of the Company during the fiscal
year ended March 31, 2000 and whose salary and bonus exceeded $100,000 with
respect to the fiscal year ended March 31, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------------------- ------------------------------
Other Annual All Other
Name and Principal Compensation Number of Compensation
Position Year Salary($) Bonus($) ($)(1) Options ($)
--------------------------- ---- ----------- -------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James Leech, President and 2000 $130,846 $10,196 ---- 750,000 ----
Chief Executive Officer 1999 $ - $ - ---- - ----
1998 $ - $ - ---- - ----
Michael Sheehan, Chief 2000 $ - $ - ---- - ----
Executive Officer 1999 $ - $ - $18,750 350,000 ----
1998 $ - $ - ---- - ----
Carl Stevens, President, 2000 $ 76,875 $50,000 ---- 250,000 ----
Virtual Call Centers and 1999 $ - $ - ---- - ----
e-learning 1998 $ - $ - ---- - ----
</TABLE>
(1) Mr. Sheehan was the Company's Chief Executive Officer from January 12,
1999 to July 6, 1999. Mr. Sheehan earned $18,750 from January 12, 1999
to March 31, 1999 for his service as a consultant to the Company. Mr.
Leech became the Company's Chief Executive Officer on September 4, 1999.
See "Employment Agreements."
Stock Option Plans
In 1998, the Company adopted a stock option plan (the "1998 Stock Option
Plan") pursuant to which 2,250,000 shares of Common Stock have been reserved for
issuance upon the exercise of options designated as either (i) options intended
to constitute incentive stock options under the Code, or (ii) nonqualified stock
options. Incentive stock options and nonqualified stock options may be granted
to employees of the Company.
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<PAGE>
The purpose of the 1998 Stock Option Plan is to encourage stock
ownership by officers and other key employees and consultants and advisors of
the Company. The 1998 Stock Option Plan is administered by the Board of
Directors of the Company. The Board, within the limitations of the 1998 Stock
Option Plan, determines the persons to whom options will be granted, the number
of shares to be covered by each option, the option purchase price per share and
the manner of exercise, and the time, manner and form of payment upon exercise
of an option.
The Company granted no stock options in the year ended December 31, 1998
and there were no option exercises in the year ended December 31, 1998. No stock
options were outstanding at December 31, 1998. As of May 31, 2000, 1,950,000
options were outstanding under the 1998 Stock Option Plan at an exercise price
of $1.00 per share.
The Company's 1999 Stock Option Plan (the "1999 Stock Option Plan") was
approved by the Board of Directors of the Company on April 1, 1999 and by the
stockholders of the Company on July 29, 1999. The purpose of the 1999 Stock
Option Plan is to create additional incentives for the Company's employees,
directors and others who perform substantial services to the Company by
providing an opportunity to purchase shares of the Common Stock pursuant to the
exercise of options granted under the 1999 Stock Option Plan. The Company may
grant options that qualify as incentive stock options under Section 422 of the
Code, and non-qualified stock options. Incentive stock options may be granted to
employees (including officers and directors who are employees). Non-qualified
stock options may be granted to employees, officers, directors, independent
contractors and consultants of the Company. As of May 31, 2000, 2,000,000 shares
were reserved for issuance under the 1999 Stock Option Plan and 1,130,000
options had been granted at an exercise price of $7.00 per share, 375,000
options had been granted at an exercise price of $7.05 per share, 100,000
options had been granted at an exercise price of $8.625 per share and 200,000
options had been granted at an exercise price of $4.00 per share. In June 2000,
the 1,130,000 options at an exercise price of $7.00 per share, the 375,000
options at an exercise price of $7.05 per share and the 100,000 options at an
exercise price of $8.625 per share were repriced to $4.00 per share.
The maximum number of shares that may be subject to options granted
under the 1999 Stock Option Plan to any individual in any calendar year may not
exceed 800,000 and the method of counting such shares shall conform to any
requirements applicable to "performance-based" compensation under Section 162(m)
of the Code. It is intended that compensation realized upon the exercise of an
option granted under the 1999 Stock Option Plan will thereupon be regarded as
"performance-based" under Section 162(m) of the Code and that such compensation
may be deductible without regard to the limits of Section 162(m) of the Code.
The Board of Directors or the Compensation Committee thereof composed of
two or more non-management directors that are "non-employee directors" within
the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended, and "outside directors" within the meaning of Section 162(m) of the
Code, is authorized to administer the 1999 Stock Option Plan in a manner that
complies with Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
The Board of Directors or Compensation Committee determines which eligible
individuals are granted options and the terms of such options including the
exercise price, number of shares subject to the option and the vesting and
exercisability thereof; provided, the maximum term of an incentive stock option
granted under the 1999 Stock Option Plan may not exceed five years.
The exercise price of an incentive stock option granted under the 1999
Stock Option plan must equal at least 100% of the fair market value of the
subject stock on the date of grant and the exercise price of all non-qualified
stock options must equal at least 80% of the fair market value of the subject
stock on the date of grant; provided, however, that if an option granted to the
Company's Chief Executive Officer or to any of the Company's other four most
highly compensated officers is intended to qualify as "performance-based"
compensation under Section 162(m) of the Code, the exercise price must equal at
least 100% of the fair market value of the subject stock on the date of grant.
With respect to any participant who owns more than 10% of the voting power of
the Common Stock of the Company, the exercise price of any option granted must
equal at least 110% of the fair market value on the date of grant. The aggregate
fair market value on the date of grant of the stock for which incentive stock
options are exercisable for the first time by an employee of the Company during
any calendar year may not exceed $100,000.
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<PAGE>
Options shall become exercisable at such times and in such installments
as the Board of Directors or Compensation Committee shall provide. Non-qualified
and incentive stock options granted under the 1999 Stock Option Plan are not
transferable other than by will or the laws of descent or distribution, and each
option that has not yet expired is exercisable only by the recipient during such
person's lifetime, or for 12 months thereafter by the person or persons to whom
the option passes by will or the laws of descent or distribution. The 1999 Stock
Option Plan may be amended at any time by the Board of Directors, although
certain amendments require stockholder approval. The 1999 Stock Option Plan will
terminate on April 8, 2009, unless earlier terminated by the Board of Directors.
Option Grants During Fiscal Year Ended March 31, 2000
The following table provides information related to options to purchase
Common Stock granted to the CEO and the named executive officers during the
fiscal year ended March 31, 2000. The Company currently does not have any plans
providing for the grant of stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Rates of Stock Price
Individual Grants Appreciation for Option
-------------------------------------------------------------------------------- -------------------------------
% of Total
Options
Number of Granted
Securities to
Underlying Employees Exercise
Options in Fiscal Price
Name Granted (#) Year ($/Sh)(1) Expiration Date 5%($) 10%($)
------------------- ------------- ------------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James Leech 750,000 32% $7.00 May 31, 2004 $1,450,475 $3,205,178
Michael Sheehan - 0% $ - - $ - $ -
Carl Stevens 250,000 11% $7.00 November 18, $ 479,176 $1,058,853
2004
</TABLE>
(1) The exercise price is equal to or greater than the fair market value of
the Common Stock on the date of grant. The options were granted for
terms of five years.
(2) The potential realizable value portion of the foregoing table
illustrates values that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the options. These numbers do not take into account
provisions of certain options providing for termination of the option
following termination of employment, non-transferability or differences
in vesting periods. Regardless of the theoretical value of an option,
its ultimate value will depend upon the market value of the Common Stock
at a future date, and that value will depend on a variety of factors,
including the overall condition of the stock market and the Company's
results of operations and financial condition. There can be no assurance
that the values reflected in this table will be achieved.
Fiscal Year End Option Values
The following table provides information related to the number and value
of options held by the CEO and the named executive officers at fiscal year end.
No options were exercised in the fiscal year ended March 31, 2000.
<TABLE>
<CAPTION>
Value of Unexercised In-the-
Shares Number of Securities Underlying Money options at FY-End ($)
Acquired Unexercised Options at FY-End (1)
on Value ----------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Leech - -- 250,000 500,000 $- $ -
Michael Sheehan - -- 350,000 -- $2,100,000 $ -
Carl Stevens - -- 83,334 166,666 $- $ -
</TABLE>
-32-
<PAGE>
(1) Based on the closing price of a share of Common Stock on March 31, 2000
of $7.00 as reported on the OTC Bulletin Board.
Employment Agreements
James Leech is employed by the Company pursuant to an employment
agreement dated as of August 5, 1999. The agreement provides that Mr. Leech's
employment with the Company shall continue unless it is terminated by either
party in accordance with the terms of the agreement. The agreement provides for
an initial base salary of Cdn $330,000 (or $227,040 in U.S. dollars as of March
31, 2000) per annum, a minimum bonus of Cdn $30,000 (or $20,640 in U.S. dollars
as of March 31, 2000) for the period ending March 31, 2000 and a minimum bonus
of Cdn $50,000 (or $34,400 in U.S. dollars as of March 31, 2000) for each
twelve-month period thereafter during the term of the agreement. Mr. Leech's
salary shall be annually reviewed and may be increased at the discretion of the
Board of Directors.
The agreement also provides that if Mr. Leech is terminated other than
for "cause," he shall receive the base salary provided for under the agreement
through the date of termination, plus a lump sum payment equal to twice his
annual base salary and bonus. He will also receive his accrued bonus, continue
to participate in certain benefit plans for the 24 months following such
termination and any options issued to Mr. Leech will immediately vest. If Mr.
Leech's employment is terminated due to death or "disability," he shall be paid
the base salary under the agreement until the date of termination and receive a
pro rata payment for all bonuses (calculated as the greater of the bonus which
would be paid under the Company's bonus plan on the basis that targets were met
and 50% of Mr. Leech's base salary), as well as any benefits accrued until the
date of termination and any options issued to Mr. Leech will immediately vest.
"Cause" is defined as a wilful refusal on the part of Mr. Leech to perform the
services required of him under the agreement (including the wilful and
intentional withholding of services thereunder), any breach of Mr. Leech's
fiduciary duties to the Company likely to cause material harm to the Company,
fraud or any conviction for a felony or indictable offense or any crime
involving moral turpitude or any of theft or dishonesty relating to a matter
material to the Company, provided that a wilful refusal to perform the services
required under the agreement will constitute cause only if Mr. Leech fails to
terminate the relevant actions or cure the relevant failure to act and remedy
any harm therefrom within 10 business days after receipt of written notice of
such wrongful act, failure to act or harm from the Company. "Disability" is
defined as the eligibility of Mr. Leech for long term disability benefits under
the disability insurance provided by the Company.
In the event Mr. Leech is terminated within 24 months of a "change of
control" of the Company, Mr. Leech shall receive a payment equal to three times
his annual base salary and bonus. He will also receive his accrued bonus,
continue to participate in certain benefit plans for 36 months following such
termination and any options issued to Mr. Leech will immediately vest. "Change
of control" is defined as (i) the direct or indirect sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of the
Company to any person or entity or group of persons or entities acting jointly
or in concert as a partnership or other group (a "Group of Persons"); (ii) the
merger, consolidation or other business combination of the Company with or into
another corporation with the effect that the shareholders of the Company
immediately following the merger, consolidation or other business combination,
hold 50% or less of the combined voting power of the then outstanding securities
of the surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors; (iii) the
replacement of a majority of the Board of Directors of the Company or of any
committee of the Board of Directors of the Company in any given year as compared
to the directors who constituted the Board of Directors of the Company or such
committee at the beginning of such year, and such replacement shall not have
been approved by the Board of Directors of the Company, as the case may be, as
constituted at the beginning of such year; (iv) a person or Group of Persons
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases, merger, consolidation or other business
combination, or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
securities of the Company representing 20% or more of the combined voting power
of the then outstanding
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<PAGE>
securities of such corporation ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors; or
(v) the voluntary liquidation, dissolution or winding-up of the Company in
connection with which a distribution is made to the holders of the Company's
common shares.
In addition, on June 1, 1999, Mr. Leech was granted options to purchase
750,000 shares of Common Stock at an exercise price of $7.00 per share. Such
options were repriced in June 2000 to $4.00 per share. Such options are
currently exercisable as to 250,000 shares and become exercisable as to an
additional 250,000 shares on September 4, 2000 and as to the remaining 250,000
shares on September 4, 2001.
Herve Seguin is employed by the Company pursuant to an employment
agreement dated as of December 6, 1999. The agreement provides that Mr. Seguin's
employment with the Company shall continue unless it is terminated by either
party in accordance with the terms of the agreement. The agreement provides for
an initial base salary of Cdn $200,000 (or $137,600 in U.S. dollars as of March
31, 2000) per annum as well as a bonus of not less than 50% of Mr. Seguin's
annual base salary. Mr. Seguin's salary shall be annually reviewed and may be
increased at the discretion of the Board of Directors.
The agreement also provides that if Mr. Seguin is terminated other than
for "cause," he shall receive the base salary provided for under the agreement
through the date of termination, plus a lump sum payment equal to his annual
base salary. Further, any options issued to Mr. Seguin will immediately vest. If
Mr. Seguin's employment is terminated due to death or "disability," he shall be
paid the base salary under the agreement until the date of termination and
receive a pro rata payment for all bonuses (calculated at 50% of Mr. Seguin's
base salary) and incentive plans to the date of termination, as well as any
benefits accrued until the date of termination and any rights pursuant to a
share option plan governing options issued to Mr. Seguin, which options shall
immediately accelerate and vest. "Cause" is defined as any act which constitutes
"cause" at law, any violation by Mr. Seguin of any material instructions, rules
or practices of the Company, a failure to comply with any provisions of his
employment agreement (including the withholding of services thereunder), any
breach of Mr. Seguin's fiduciary duties to the Company likely to cause harm to
the Company, fraud or any conviction for a felony or indictable offense or any
crime involving moral turpitude or any of theft or dishonesty relating to a
matter material to the Company. "Disability" is defined as the eligibility of
Mr. Seguin for long term disability benefits under the disability insurance
provided by the Company.
In the event Mr. Seguin is terminated within 24 months of a "change of
control" of the Company, Mr. Seguin shall receive his base salary through the
date of termination as well as a lump sum amount equal to 1.5 times his annual
base salary. Further, any options issued to Mr. Seguin will immediately
accelerate and vest. "Change of control" is defined as (i) the acquisition by
any person, entity or group of persons or entities acting jointly or in concert,
of voting securities of the Company or rights or options to acquire voting
securities of the Company or securities convertible into or exchangeable for
voting securities of the Company or any combination thereof such that after the
completion of the acquisition such person, entity or group would be entitled to
exercise 50.1% or more of the total number of votes entitled to be cast at a
meeting of shareholders of the Company; or (ii) the sale by the Company of all
or substantially all of the property or assets of the Company; or (iii) a
reorganization, plan of arrangement or merger resulting in the circumstances set
out in (i) or (ii) above.
In addition, on December 8, 1999, Mr. Seguin was granted options to
purchase 350,000 shares of Common Stock at an exercise price of $7.05 per share.
Such options were repriced in June 2000 to $4.00 per share. Such options are
currently exercisable as to 116,667 shares and become exercisable as to an
additional 116,667 shares on January 4, 2001 and as to the remaining 116,666
shares on January 4, 2002.
Compensation of Directors
The Company did not pay directors fees to any of the directors during
the fiscal year ended March 31, 2000. All directors are reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of May 26, 2000 with
respect to the beneficial ownership of Common Stock by (i) each person known by
the Company to own beneficially more than 5% of the Common Stock, (ii) each
executive officer of the Company, (iii) each Director of the Company and (iv)
all Directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Number of Shares Percentage
Owner(1) Beneficially Owned of Class(2)
------------------------- ------------------- ----------
<S> <C> <C>
Darcy Galvon 617,910(3) 2.87%
A. Thomas Griffis 9,179,997(4) 42.68%
James Leech 9,205,000(5) 42.49%
Michael Sheehan 9,305,000(6) 42.77%
Richard Shannon 309,999(7) 1.44%
George Shafran 9,088,334(8) 42.25%
Alexander Walsh 9,155,000(9) 42.37%
Herve Seguin 116,667(10) *
Jennifer Scoffield 116,667(11) *
Carl Stevens 83,334(12) *
Jeffrey Spindler 15,000(13) *
Glen Allmendinger 8,334(14) *
Treetop Capital Inc. 8,955,000(15) 41.83%
c/o Griffis International
1 Richmond Street West,
Suite 901, Toronto,
Ontario M5H3W4
Don Jeffrey 9,880,749(16) 45.94%
All officers and 11,381,241 50.54%
directors as a group
(12 persons)
</TABLE>
--------------
* Less than one percent (1%) of outstanding Common Stock.
(1) Except as otherwise indicated, the address for each of the named
individuals is c/o InfoCast Corporation, 1 Richmond Street West, Suite
902, Toronto, Ontario, Canada M5H 3W4.
(2) Except as otherwise indicated, the stockholders listed in the table
have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. Pursuant to the rules and
regulations of
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<PAGE>
the Securities and Exchange Commission, shares of Common Stock that an
individual or group has a right to acquire within sixty (60) days
pursuant to the exercise of warrants or options are deemed to be
outstanding for the purposes of computing the percentage ownership of
such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown
in the table.
(3) Represents (i) 517,000 shares to be issued in exchange for outstanding
exchangeable shares of InfoCast Canada Corporation, (ii) 100,000 shares
issuable upon exercise of options granted to Mr. Galvon under the 1998
Stock Option Plan and (iii) 910 shares held by Mr. Galvon's spouse.
(4) Represents (i) 124,997 shares of Common Stock held by Griffis
International Limited, of which Mr. Griffis, the Chairman of the Board
of the Company, owns 100%, (ii) 100,000 shares issuable upon exercise
of options granted to Mr. Griffis under the 1998 Stock Option Plan and
(iii) 8,955,000 shares held by Treetop Capital Inc. ("Treetop"), of
which Griffis International Limited is a shareholder. Mr. Griffis and
Griffis International Limited have no control over Treetop or power to
direct Treetop's voting or disposition of its interest in the Company
other than with respect to 1,020,000 shares of which Griffis
International Limited is the beneficial owner. Thus, Mr. Griffis
disclaims beneficial ownership with respect to 7,935,000 of the shares
of the Company's Common Stock owned by Treetop. Treetop expects to
distribute in the near future the shares it holds in the Company on a
pro rata basis to Treetop's shareholders.
(5) Represents (i) 250,000 shares issuable upon exercise of options granted
to Mr. Leech in June 1999 and (ii) 8,955,000 shares held by Treetop of
which Mr. Leech is an option holder. Mr. Leech has no control over
Treetop or power to direct Treetop's voting or disposition of its
interest in the Company other than with respect to 300,000 shares of
which he is the beneficial owner. Thus, Mr. Leech disclaims beneficial
ownership with respect to 8,655,000 of the shares of the Company's
Common Stock owned by Treetop. Treetop expects to distribute in the
near future the shares it holds in the Company on a pro rata basis to
Treetop's shareholders.
(6) Represents (i) 350,000 shares issuable upon exercise of options granted
to Mr. Sheehan under the 1998 Stock Option Plan and (ii) 8,955,000
shares held by Treetop, of which Mr. Sheehan is a shareholder. Mr.
Sheehan has no control over Treetop or power to direct Treetop's voting
or disposition of its interest in the Company other than with respect
to 175,000 shares of which he is the beneficial owner. Thus, Mr.
Sheehan disclaims beneficial ownership with respect to 8,780,000 of the
shares of the Company's Common Stock owned by Treetop. Treetop expects
to distribute in the near future the shares it holds in the Company on
a pro rata basis to Treetop's shareholders.
(7) Includes (i) 219,999 shares to be issued in exchange for outstanding
shares of InfoCast Canada and (ii) 90,000 shares issuable upon exercise
of options granted to Mr. Shannon under the 1999 Stock Option Plan.
(8) Represents (i) 100,000 shares issuable upon exercise of options granted
to Mr. Shafran under the 1998 Stock Option Plan, (ii) 33,334 shares of
Stock held by Mr. Shafran and (iii) 8,955,000 shares held by Treetop,
of which Mr. Shafran is a shareholder. Mr. Shafran has no control over
Treetop or power to direct Treetop's voting or disposition of its
interest in the Company other than with respect to 225,000 shares of
which he is the beneficial owner. Thus, Mr. Shafran disclaims
beneficial ownership with respect to 8,730,000 of the shares of the
Company's Common Stock owned by Treetop. Treetop expects to distribute
in the near future the shares it holds in the Company on a pro rata
basis to Treetop's shareholders.
(9) Represents (i) 200,000 shares issuable upon exercise of options granted
to Mr. Walsh under the 1999 Stock Option Plan and (ii) 8,955,000 shares
held by Treetop, of which Mr. Walsh is a shareholder. Mr. Walsh has no
control over Treetop or power to direct Treetop's voting or disposition
of its interest in the Company other than with respect to 300,000
shares of which he is the beneficial owner. Thus, Mr. Walsh disclaims
beneficial ownership with respect to 8,655,000 of the shares of the
Company's Common Stock owned by Treetop.
-36-
<PAGE>
Treetop expects to distribute in the near future the shares it holds in
the Company on a pro rata basis to Treetop's shareholders.
(10) Represents 116,667 shares issuable upon exercise of options granted to
Mr. Seguin under the 1999 Stock Option Plan.
(11) Represents 116,667 shares issuable upon exercise of options granted to
Ms. Scoffield under the 1999 Stock Option Plan.
(12) Represents 83,334 shares issuable upon exercise of options granted to
Mr. Stevens under the 1999 Stock Option Plan.
(13) Includes 5,000 shares issuable upon exercise of options granted to Mr.
Spindler under the 1999 Stock Option Plan.
(14) Represents 8,334 shares issuable upon exercise of options granted to
Mr. Allmendinger under the 1999 Stock Option Plan.
(15) Represents shares to be distributed to its shareholders on a pro rata
basis in the near future.
(16) Represents (i) 825,749 shares of Common Stock held by Mr. Jeffrey, (ii)
100,000 shares issuable upon exercise of options granted to Mr. Jeffrey
under the 1998 Stock Option Plan, and (iii) 8,955,000 shares held by
Treetop, of which Mr. Jeffrey or his wholly-owned company is a
shareholder. Mr. Jeffrey has no control over Treetop or power to direct
Treetop's voting or disposition of its interest in the Company other
than with respect to 1,103,680 shares of which he is the beneficial
owner. Thus, Mr. Jeffrey disclaims beneficial ownership with respect to
7,851,320 of the shares of the Company's Common Stock owned by Treetop.
Treetop expects to distribute in the near future the shares it holds in
the Company on a pro rata basis to Treetop's shareholders.
Item 13. Certain Relationships and Related Transactions
During year ended March 31, 2000, the Company paid consulting fees to
A. Thomas Griffis, the Co-Chairman of the Board of the Company, who is the sole
owner of Griffis International Limited, in the amount of Cdn $210,000 (or
$142,740 in U.S. dollars as of March 31, 2000) and accrued an additional Cdn
$30,000 (or $20,392 in U.S. dollars as of March 31, 2000) for financial and
management consulting services rendered. The Company will continue to pay a
monthly consulting fee of Cdn $15,000 (or $10,195 in U.S. dollars as of March
31, 2000) while services are being rendered.
During the year ended March 31, 2000, the Company paid consulting fees
to Don Jeffrey, a shareholder beneficially owning greater than 5% of the
outstanding shares of the Company, in the amount of Cdn $105,000 (or $71,370 in
U.S. dollars as of March 31, 2000) for consulting services related to business
development and advice on potential acquisitions, including introducing the
Company to HomeBase Work Solutions Ltd. and identifying potential customers.
During the year ended March 31, 2000, the Company paid consulting fees
totaling $120,000 and accrued an additional $40,000 to George Shafran, a
director of the Company, for consulting services related to business development
and advice on potential acquisitions, including introducing the Company to an
acquisition candidate and attending numerous sales calls with potential
customers. The Company will continue to pay a monthly consulting fee while
services are being rendered.
During the year ended March 31, 2000, the Company paid incentive
compensation fees to Darcy Galvon, its Co-Chairman of the Board, of Cdn $140,000
(or $95,160 in U.S. dollars as of March 31, 2000) in connection with the
Company's acquisition of HomeBase Work Solutions. During the year ended March
31, 2000 the Company paid consulting fees to 2Inc., a company owned 50% by Darcy
Galvon, in the amount of Cdn. $86,000 (or $58,456 in U.S. dollars as of March
31, 2000) and accrued an additional CDN $54,000 (or $36,705 in U.S. dollars as
of March 31, 2000)
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<PAGE>
for consulting services rendered by Mr. Galvon. The Company will continue to pay
a monthly consulting fee while such services are being rendered.
From July 29, 1997 to March 31, 1999, the Company received cash
advances from View Media, a company controlled by Don Jeffrey, a shareholder
beneficially owning approximately 10.5% of the outstanding shares of the
Company, totaling approximately $109,000. The Company repaid such advances prior
to June 30, 1999.
Darcy Galvon, Co-Chairman of the Board of the Company, is a Director of
Facet Petroleum Solutions, Inc. Pursuant to a licensing and distribution
agreement dated March 30, 1999 between HomeBase Work Solutions and Facet
Petroleum Solutions Inc., HomeBase Work Solutions acquired the exclusive right
in the telework market to distribute Facet Petroleum's Telework Operational Data
Store software for a period of two years in consideration for 6,910 common
shares of HomeBase valued at Cdn $200,678 (or $139,000 in U.S. dollars as of
December 31, 1999). Facet Petroleum received 25,000 shares of Common Stock of
the Company in exchange for the 6,910 HomeBase Work Solutions shares as a result
of the acquisition of HomeBase Work Solutions by the Company on May 13, 1998.
-38-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) Financial Statements.
See index to financial statements which appears on page F-1 herein.
(2) Exhibits.
See exhibit index immediately following the signature page hereto.
(B) Reports on Form 8-K filed in the fourth quarter of the period covered
by this Report.
(1) Item 5 Current Report on Form 8-K dated February 23, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
InfoCast Corporation
By: /s/ James Leech
-----------------------------------
James Leech,
Chief Executive Officer (Principal
Executive Officer)
By: /s/ Herve Seguin
-----------------------------------
Herve Seguin,
Chief Financial Officer (Principal
Financial Officer)
June 21, 2000
-------------
Date
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below hereby constitutes and appoints James Leech and Herve Seguin, and
each of them singly, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Date: June 21, 2000
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
By: /s/ James Leech June 21, 2000
----------------------------------------------- -------------
James Leech, President, Chief Executive Officer Date
and Director (Principal Executive Officer)
By: /s/ Herve Seguin June 21, 2000
----------------------------------------------- -------------
Herve Seguin, Chief Financial Officer Date
(Principal Financial Officer)
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<PAGE>
By: /s/ A. Thomas Griffis June 21, 2000
----------------------------------------------- -------------
A. Thomas Griffis, Co-Chairman of the Board Date
and Director
By: /s/ Darcy Galvon June 21, 2000
----------------------------------------------- -------------
Darcy Galvon, Co-Chairman of the Board Date
and Director
By: /s/ Michael Sheehan June 21, 2000
----------------------------------------------- -------------
Michael Sheehan Date
Executive Vice President, Virtual Call Center,
and Director
By: /s/ George Shafran June 21, 2000
----------------------------------------------- -------------
George Shafran Date
Director
By: /s/ Jeffrey S. Spindler June 21, 2000
----------------------------------------------- -------------
Jeffrey S. Spindler Date
Director
By: /s/ Glen Allmendinger June 21, 2000
----------------------------------------------- -------------
Glen Allmendinger Date
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<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
2.1 Agreement and Plan of Merger dated May 3, 2000 by and between the
Company and i360 Inc.
3.1 Articles of Incorporation, as amended, of the Company (Incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 0-27343).
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.1 Specimen Certificate of the Company's Common Stock (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.2 Form of 1998 Stock Option Plan ("1998 Plan") (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.3 Form of Option Grant Letter under 1998 Plan (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.4 Form of 1999 Stock Option Plan ("1999 Plan") (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.5 Form of Option Grant Letter under 1999 Plan (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.6 Option Agreement dated June 1, 1999, by and between the Company and
James William Leech (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
4.7 Warrant to Purchase 50,000 shares of Common Stock dated June 24,
1999, issued to Thomson Kernaghan and Co. Ltd. (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.8 Warrant to Purchase 20,000 shares of Common Stock dated June 24,
1999, issued to Thomson Kernaghan and Co. Ltd. (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
4.9 Warrant to Purchase 25,000 shares of Common Stock dated May 31,
1999 issued to the Poretz Group (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
4.10 Provisions Attaching to Common Shares of InfoCast Canada
Corporation (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
4.11 Exchange Agreement dated as of May 13, 1999 by and among the
Company, InfoCast Canada Corporation, HomeBase Work Solutions Ltd.
and the Shareholders (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
4.12 Support Agreement dated as of May 13, 1999 by and among the
Company, InfoCast Canada Corporation, HomeBase Work Solutions Ltd.,
and the Shareholders (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
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<PAGE>
4.13 Warrant to Purchase 12,500 shares of Common Stock dated October 6,
1999 issued to the Poretz Group (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0- 27343).
4.14 Warrant to Purchase 12,500 shares of Common Stock dated January 1,
2000 issued to The Ponetz Group (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
ended December 31, 1999).
4.15 Warrant to Purchase 56,000 shares of Common Stock dated February
10, 2002 issued to The Cuttyhunk Fund Limited.
4.16 Form of 7% Convertible Subordinated Debenture issued under
Confidential Private Placement Memorandum dated June 1, 2000.
4.17 Warrant to Purchase 200,000 shares of Common Stock dated April 7,
2000 issued to SmallCaps Online Group LLC.
10.1 Letter Agreement dated March 17, 1999, from the Company to Sandy
Walsh (Incorporated by reference to the Company's Registration
Statement on Form 10, File No. 0-27343).
10.2 Employment to Agreement dated August 5, 1999, by and between the
Company and James William Leech (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0- 27343).
10.3 Consulting Agreement dated December 1, 1998, by and between the
Company and Three Hundred & Sixty Degrees, Inc. (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
10.4 Consulting Agreement dated March 22, 1999, by and between the
Company and Thomson Kernaghan & Co. Ltd. (Incorporated by reference
to the Company's Registration Statement on Form 10, File No.
0-27343).
10.5 Consulting Agreement dated April 15, 1999, by and between the
Company and Michael Baybak and Company, Inc. (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
10.6 Letter Agreement dated June 15, 1999, by and between the Company
and Lasso Communications Inc. (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
10.7 Advertising Services Agreement dated July 1, 1999, by and between
the Company and Lasso Communications Inc. (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
10.8 Release dated July 14, 1999, by and among the Company, Lasso
Communications Inc., James Hines and Michael Gruber. (Incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 0-27343).
10.9 Memorandum of Understanding dated June 7, 1999, by and between the
Company and Willow CSN. (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
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<PAGE>
10.10 Summary of Terms and Conditions dated April 21, 1999, by and
between the Company and CosmoCom, Inc. (Incorporated by reference
to the Company's Registration Statement on Form 10, File No.
0-27343).
10.11 Agreement of Purchase and Sale dated as of November 17, 1998, by
and between Advanced Systems Computer Consultants, Inc. and
Cheltenham Technologies (Bermuda) Corporation (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
10.12 Asset Sale Agreement dated as of November 23, 1998, by and between
Grant Reserve Corporation and Cherokee Mining Company (Incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 0-27343).
10.13 Pledge Agreement dated as of November 25, 1998, by and between
Grant Reserve Corporation and Cherokee Mining Company (Incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 0-27343).
10.14 Agreement dated as of May 18, 1999, by and between the Company and
Call Center Learning Solutions, Inc. (Incorporated by reference to
the Company's Registration Statement on Form 10, File No. 0-27343).
10.15 Distribution Agreement dated as of March 12, 1999, by and between
the Company and ITC Learning Corporation (Incorporated by reference
to the Company's Registration Statement on Form 10, File No.
0-27343).
10.16 License Agreement dated June 29, 1999, by and between the Company
and ITC Learning Corporation (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
10.17 Letter Agreement dated March 24, 1999, by and between the Company
and Applied Courseware Technology, Inc. (Incorporated by reference
to the Company's Registration Statement on Form 10, File No.
0-27343).
10.18 General Security Agreement dated March 25, 1999, by and between
InfoCast Canada Corporation and Applied Courseware Technology, Inc.
(Incorporated by reference to the Company's Registration Statement
on Form 10, File No. 0-27343).
10.19 Memorandum of Understanding dated August 28, 1998, by and between
Home Base Work Solutions Ltd. and Shaw Fiberlink Ltd. (Incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 0-27343).
10.20 Licensing and Distribution Agreement dated March 7, 1999, by and
between HomeBase Work Solutions Ltd. and Facet Decision Systems,
Inc. (Incorporated by reference to the Company's Registration
Statement on Form 10, File No. 0-27343).
10.21 Licensing and Distribution Agreement dated March 30, 1999, by and
between HomeBase Work Solutions Ltd. and Facet Petroleum Solutions,
Inc.(Incorporated by reference to the Company's Registration
Statement on Form 10, File No. 0-27343)
10.22 Share Purchase Agreement dated as of May 13, 1999, by and among the
Company, InfoCast Canada Corporation, HomeBase Work Solutions Ltd.
and the Shareholders named therein (Incorporated by reference to
the Company's Registration Statement on Form 10, File No. 0-27343).
-44-
<PAGE>
10.23 General Security Agreement dated March 25, 1999, by and between
InfoCast Canada Corporation and HomeBase Work Solutions, Ltd.
(Incorporated by reference to the Company's Registration Statement
on Form 10, File No. 0-27343)
10.24 Letter Agreement dated May 1999 (date unspecified), by and among
the Company and Darcy Galvon, Ken MacLean and Sean Fleming
(Incorporated by reference to the Company's Registration Statement
on Form 10, File No. 0-27343).
10.25 Master Lease Agreement dated June 25, 1998, by and between HomeBase
Work Solutions, Ltd. and Sun MicroSystems (Incorporated by
reference to the Company's Registration Statement on Form 10, File
No. 0-27343).
10.26 Memorandum of Agreement dated July 31, 1997, by and between Virtual
Performance Systems Inc. (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
10.27 Letter Agreement dated November 27, 1998, by and among Grant
Reserve Corporation, Sheridan Reserve Corporation and Virtual
Performance Systems Inc. (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
10.28 Share Purchase Agreement dated as of January 29, 1999, by and among
InfoCast Canada Limited, Virtual Performance Systems Inc. and the
Selling Shareholders named therein. (Incorporated by reference to
the Company's Registration Statement on Form 10, File No. 0-27343.
10.29 Letter Agreement dated May 18, 1999, by and between the Company and
Satish Kumeta (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
10.30 Letter of Engagement dated October 21, 1999, by and among the
company, N.M. Rothschild & Sons Canada Limited and N.M. Rothschild
& Sons (Washington) LLC (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
10.31 Letter of Understanding by and between the Company and AT&T Canada
Long Distance Services Company (Incorporated by reference to the
Company's Registration Statement on Form 10, File No. 0-27343).
10.32 Memorandum of Engagement dated December 10, 1998 by and between the
Company and College Boreal D'Arts Appliques et de Technologie
(Incorporated by reference to the Company's Registration Statement
on Form 10, File No. 0-27343)
10.33 Assignment of Contract and Assumption of Liability dated October
19, 1999 by and between the Company and High Performance Group,
Inc. (Incorporated by reference to the Company's Registration
Statement on Form 10, File No. 0-27343).
10.34 Employment Agreement dated December 6, 1999 by and between the
Company and Herve Seguin (Incorporated by reference to the
Company's Registration Statement on Form S-1 No. 333-94201).
10.35 Employment Agreement dated October 1, 1999 by and between InfoCast
Canada Corporation and Christopher Rouse (Incorporated by reference
to the Company's Registration Statement on Form S-1 No. 333-94201).
10.36 Employment Agreement dated September 1999 by and between the
Company and Carl Steven (Incorporated by reference to the Company's
Registration Statement on Form S-1 No. 333-94201).
-45-
<PAGE>
10.37 Strategic Alliance Agreement dated November 29, 1999 by between the
Company and TManage, Inc.(Incorporated by reference to the
Company's Registration Statement on Form S-1 No. 333-94201).
10.38 Service Provider Agreement dated as of December 9, 1999 by and
between the Company and Sun Microsystems of Canada, Inc.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Fiscal Quarter ended December 31, 1999).
10.39 Heads of Agreement dated December 17, 1999 by and between the
Company and InfoCast (Australia) Limited (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the Fiscal
Quarter ended December 31, 1999).
10.40 Minutes of Settlement Agreement dated January 7, 2000 between
Applied Courseware Technology Inc., Gerard Costello, Faye Costello,
Joseph Costello, InfoCast Canada Corporation and the Company
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Fiscal Quarter ended December 31, 1999).
10.41 Full and Final Release dated January 6, 2000 by and among the
Company, InfoCast Canada Corporation and Stephen Headford
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Fiscal Quarter ended December 31, 1999).
10.42 Release dated January 7, 2000 by and among the Company, InfoCast
Canada Corporation, Applied Courseware Technology, Inc., Gerard
Costello, Faye Costello and Joseph Costello (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter ended December 31, 1999).
10.43 Release dated January 7, 2000 by and among the Company, InfoCast
Canada Corporation, Applied Courseware Technology, Inc., Gerard
Costello, Faye Costello and Joseph Costello (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter ended December 31, 1999).
10.44 Termination Agreement dated July 29, 1999 between the Company and
Cherokee Mining Company Inc. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
ended December 31, 1999).
10.45 Assignment of Promissory Note dated July 29, 1999 by and between
the Company and Cherokee Mining Company, Inc. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter ended December 31, 1999).
10.46 Agreement dated April 7, 2000 by and between the Company and
SmallCaps Online Group LLC.
16.1 Letter from Jackson & Rhodes, P.C. relating to change of
accountants, dated September 3, 1999 (Incorporated by reference to
the Company's Registration Statement on Form 10, File No. 0-27343).
21.1 List of Subsidiaries (Incorporated by reference to the Company's
Registration Statement on Form 10, File No. 0-27343).
24 Power of attorney (included on the signature page hereto).
27.1 Financial Data Schedule.
-46-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheets as of March 31, 2000 and 1999....................F-3
Consolidated Statement of Operations and Comprehensive Loss for the year
ended March 31, 2000 and the three months ended March 31, 1999 and 1998.F-4
Consolidated Statements of Cash Flows for the year ended March 31, 2000 and
the three months ended March 31, 1999 and 1998..........................F-5
Consolidated Statements of Changes in Stockholders' Equity
for the year ended March 31, 2000 and the three months
ended March 31, 1999 and 1998...........................................F-7
Notes to Consolidated Financial Statements..................................F-11
F-1
<PAGE>
AUDITORS' REPORT
To the Stockholders of
InfoCast Corporation
We have audited the consolidated balance sheets of InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company] as of
March 31, 2000 and March 31, 1999 and the related consolidated statements of
operations and comprehensive loss, cash flows and changes in stockholders'
equity for the year ended March 31, 2000, the three month period ended March 31,
1999, the year ended December 31, 1998, the 156 day period ended December 31,
1997 and the period from July 29, 1997 to March 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of InfoCast Corporation as at March 31, 2000 and March 31, 1999 and the
results of its operations and its cash flows for the year ended March 31, 2000,
the three month period ended March 31, 1999, the year ended December 31, 1998,
the 156 day period ended December 31, 1997 and the period from July 29, 1997 to
March 31, 2000 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Toronto, Canada,
May 5, 2000. Chartered Accountants
F-2
<PAGE>
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
March 31, March 31,
2000 1999
$ $
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Current
<S> <C> <C>
Cash and cash equivalents 3,637,931 3,092,445
Short-term equity investment [note 8] 3,900,000 --
Accounts receivable 275,283 258,244
Prepaid expenses and other [note 11] 324,835 21,404
-----------------------------------------------------------------------------------------------------------------------
Total current assets 8,138,049 3,372,093
-----------------------------------------------------------------------------------------------------------------------
Deferred agency fee [note 9] 604,583 --
Capital assets, net [note 5] 3,152,983 107,392
Goodwill, net 4,812,380 --
Distribution and licensing rights, net [note 4] 2,975,000 500,000
Intellectual property, net [note 3] 14,886,486 45,591
-----------------------------------------------------------------------------------------------------------------------
34,569,481 4,025,076
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,814,538 354,694
Current portion of obligations under capital leases [note 7] 479,813 --
Due to related parties [note 6] 20,392 177,270
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,314,743 531,964
-----------------------------------------------------------------------------------------------------------------------
Long-term
Convertible debentures [note 9] 3,500,000 --
Obligations under capital leases [note 7] 802,836 --
Deferred income taxes 5,656,895 --
-----------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 9,959,731 --
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 12,274,474 531,964
-----------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock
[100,000,000 authorized and 24,571,336 issued and outstanding at
March 31, 2000, 18,172,333 at March 31, 1999] 23,071 16,672
Additional paid-in capital 57,933,723 16,925,017
Deferred compensation (1,677,491) (9,858,932)
Warrants 1,007,875 --
Accumulated other comprehensive income (loss) (237,033) 14,309
Accumulated development stage deficit (34,755,138) (3,603,954)
----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,295,007 3,493,112
----------------------------------------------------------------------------------------------------------------------
34,569,481 4,025,076
======================================================================================================================
</TABLE>
See accompanying notes
F-3
<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]
<TABLE>
<CAPTION>
Three months Three months
Year ended ended ended
March 31, March 31, March 31,
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------------------------------------------------------
[unaudited]
<S> <C> <C>
REVENUE 305,754 -- 43,446
EXPENSES
General, administrative and selling, excluding stock option compensation 7,391,128 635,334 42,494
Stock option compensation [note 8] 13,351,908 2,256,938 --
Research and development, excluding stock option compensation 5,186,265 162,914 19,703
Interest and loan fees [note 9] 1,913,482 23,562 --
Amortization 4,315,180 4,144 --
Depreciation 495,401 5,507 870
--------------------------------------------------------------------------------------------------------------------------------
32,653,364 3,088,399 63,067
--------------------------------------------------------------------------------------------------------------------------------
Loss from operations before the following (32,347,610) (3,088,399) (19,621)
Interest income 132,057 4,478 --
--------------------------------------------------------------------------------------------------------------------------------
Equity in loss of joint venture [note 12] (164,736) -- --
--------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (32,380,289) (3,083,921) (19,621)
Deferred income taxes (1,229,105) -- --
--------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (31,151,184) (3,083,921) (19,621)
Unrealized loss on short-term equity investment (287,500) -- --
Translation adjustment 36,158 (6,614) (1,227)
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss for the period (31,402,526) (3,090,535) (20,848)
--------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 22,655,810 11,583,995 41
--------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share (1.37) (0.27) (478.56)
--------------------------------------------------------------------------------------------------------------------------------
Stock option compensation expense related to
General, administrative and selling 9,594,046 1,452,549 --
Research and development 3,757,861 804,389 --
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from Cumulative
July 29, 1997 from
Year ended [inception] to inception to
December 31, December 31, March 31,
1998 1997 2000
$ $ $
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE 43,446 3,508 352,708
EXPENSES
General, administrative and selling, excluding stock option compensation 375,302 47,954 8,449,718
Stock option compensation [note 8] -- -- 15,608,846
Research and development, excluding stock option compensation 88,180 51,257 5,488,616
Interest and loan fees [note 9] -- -- 1,937,044
Amortization -- -- 4,319,324
Depreciation 3,836 458 505,202
----------------------------------------------------------------------------------------------------------------------------------
467,318 99,669 36,308,750
----------------------------------------------------------------------------------------------------------------------------------
Loss from operations before the following (423,872) (96,161) (35,956,042)
Interest income -- -- 136,535
----------------------------------------------------------------------------------------------------------------------------------
Equity in loss of joint venture [note 12] -- -- (164,736)
----------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (423,872) (96,161) (35,984,243)
Deferred income taxes -- -- (1,229,105)
----------------------------------------------------------------------------------------------------------------------------------
Net loss for the period (423,872) (96,161) (34,755,138)
Unrealized loss on short-term equity investment -- -- (287,500)
Translation adjustment 19,291 1,632 50,467
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss for the period (404,581) (94,529) (34,992,171)
==================================================================================================================================
Weighted average number of shares outstanding 768,301 41 9,974,536
==================================================================================================================================
Basic and diluted loss per share (0.55) (2,345.39) (3.48)
==================================================================================================================================
Stock option compensation expense related to
General, administrative and selling -- -- 11,046,595
Research and development -- -- 4,562,250
==================================================================================================================================
</TABLE>
See accompanying notes
F-4
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
Three months Three months
Year ended ended ended
March 31, March 31, March 31,
2000 1999 1998
$ $ $
---------------------------------------------------------------------------------------------------------------------------------
[unaudited]
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss for the period (31,151,184) (3,083,921) (19,621)
Add (deduct) items not affecting cash
Stock option compensation 13,351,908 2,256,938 --
Common stock issued for services 439,820 10,180 --
Warrants issued for services 781,075 -- --
Common stock issued to Applied Courseware Technology (A.C.T) Inc. 1,337,500 -- --
Write-off of in-process research and development 19,000 -- --
Write-off of Applied Courseware Technology (A.C.T.) Inc. loan 98,685 -- --
Non-cash interest expense 1,913,482 -- --
Equity in loss of joint venture 164,736 -- --
Deferred income taxes (1,229,105) -- --
Amortization 4,315,180 4,144 --
Depreciation 495,401 5,507 870
--------------------------------------------------------------------------------------------------------------------------------
(9,463,502) (807,152) (18,751)
Changes in non-cash working capital balances
Accounts receivable (197,371) (9,723) (19,501)
Prepaid expenses and other (301,964) (6,179) (61)
Bank overdraft -- -- 9,263
Accounts payable and accrued liabilities 1,298,048 173,306 10,999
Due from InfoCast [the acquired entity] prior to acquisition -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (8,664,789) (649,748) (18,051)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period from Cumulative
July 29, 1997 from
Year ended [inception] to inception to
December 31, December 31, March 31,
1998 1997 2000
$ $ $
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss for the period (423,872) (96,161) (34,755,138)
Add (deduct) items not affecting cash
Stock option compensation -- -- 15,608,846
Common stock issued for services -- -- 450,000
Warrants issued for services -- -- 781,075
Common stock issued to Applied Courseware Technology (A.C.T) Inc. -- -- 1,337,500
Write-off in-process research and development -- -- 19,000
Write-off Applied Courseware Technology (A.C.T.) Inc. loan -- -- 98,685
Non-cash interest expense -- -- 1,913,482
Equity in loss of joint venture -- -- 164,736
Deferred income taxes -- -- (1,229,105)
Amortization -- -- 4,319,324
Depreciation 3,836 458 505,202
----------------------------------------------------------------------------------------------------------------------------------
(420,036) (95,703) (10,786,393)
Changes in non-cash working capital balances
Accounts receivable 6,593 (16,286) (216,787)
Prepaid expenses and other (15,187) (38) (323,368)
Bank overdraft -- -- --
Accounts payable and accrued liabilities 103,591 13,518 1,588,463
Due from InfoCast [the acquired entity] prior to acquisition (25,020) -- (25,020)
----------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (350,059) (98,509) (9,763,105)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CASH FLOWS cont'd
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
Three months Three months
Year ended ended ended
March 31, March 31, March 31,
2000 1999 1998
$ $ $
------------------------------------------------------------------------------------------------------------------------------------
[unaudited]
INVESTING ACTIVITIES
<S> <C> <C> <C>
Purchase of capital assets (2,024,070) (93,659) (325)
Distribution rights (2,475,000) (500,000) --
Due from Homebase Work Solutions Ltd. -- (99,529) --
Acquisition of Homebase Work Solutions Ltd. 50,667 -- --
Investment in joint venture (171,720) -- --
Due from Applied Courseware Technology (A.C.T.) Inc. -- (139,299) --
Acquisition of InfoCast Corporation -- 87 --
------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (4,620,123) (832,400) (325)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entity] -- -- --
Increase (decrease) in due to related parties (177,270) (95,755) 19,346
Repayment of capital lease obligations (213,808) -- --
Receipt of short-term unsecured loan -- 400,000 --
Payment of short-term unsecured loan -- (400,000) --
Cash advance from InfoCast [the acquired entity] prior to acquisition -- 146,900 --
Cash proceeds from convertible debentures, net 3,225,000 -- --
Cash proceeds from issuance of share capital , net 10,970,537 4,505,508 --
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 13,804,459 4,556,653 19,346
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period 519,547 3,074,505 970
Effects of foreign exchange rate changes on cash balances 25,939 (7,655) (1,271)
Cash and cash equivalents, beginning of period 3,092,445 25,595 301
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 3,637,931 3,092,445 --
====================================================================================================================================
Supplemental cash flow information
Interest and lending fees paid during the period -- 23,562 --
Capital lease obligation assumed during the period 1,496,466 -- --
Fair value of acquisitions acquired through share issuances during the period 17,000,000 307,688 --
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Period from Cumulative
July 29, 1997 from
Year ended [inception] to inception to
December 31, December 31, March 31,
1998 1997 2000
$ $ $
----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
<S> <C> <C> <C>
Purchase of capital assets (11,644) (12,412) (2,141,785)
Distribution rights -- -- (2,975,000)
Due from Homebase Work Solutions Ltd. -- -- (99,529)
Acquisition of Homebase Work Solutions Ltd. -- -- 50,667
Investment in joint venture -- -- (171,720)
Due from Applied Courseware Technology (A.C.T.) Inc. -- -- (139,299)
Acquisition of InfoCast Corporation -- -- 87
----------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (11,644) (12,412) (5,476,579)
----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable to InfoCast [the acquired entity] 250,000 -- 250,000
Increase (decrease) in due to related parties 114,476 109,545 (49,004)
Repayment of capital lease obligations -- -- (213,808)
Receipt of short-term unsecured loan 70,000 -- 470,000
Payment of short-term unsecured loan (70,000) -- (470,000)
Cash advance from InfoCast [the acquired entity] prior to acquisition -- -- 146,900
Cash proceeds from convertible debentures, net -- -- 3,225,000
Cash proceeds from issuance of share capital , net 2,373 45 15,478,463
---------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 366,849 109,590 18,837,551
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period 5,146 (1,331) 3,597,867
Effects of foreign exchange rate changes on cash balances 20,148 1,632 40,064
Cash and cash equivalents, beginning of period 301 -- --
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 25,595 301 3,637,931
=================================================================================================================================
Supplemental cash flow information
Interest and lending fees paid during the period -- -- 23,562
Capital lease obligation assumed during the period -- -- 1,496,466
Fair value of acquisitions acquired through share issuances during the period -- -- 17,307,688
=================================================================================================================================
</TABLE>
See accompanying notes
F-6
<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]
<TABLE>
<CAPTION>
Common stock Additional
Common issued and paid-in Deferred
shares outstanding capital compensation
# $ $ $
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deemed common shares issued for
intellectual properties [note 1] 14 -- 25 --
Deemed common shares issued
for cash [note 1] 27 -- 45 --
Net loss for the period -- -- -- --
Translation adjustment -- -- -- --
------------------------------------------------------------------------------------------------------------------
Deemed balance as of
December 31, 1997 41 -- 70 --
Deemed common shares issued
for cash [note 1] 1,499,959 -- 2,373 --
Net loss for the period -- -- -- --
Translation adjustment -- -- -- --
------------------------------------------------------------------------------------------------------------------
Deemed balance as of
December 31, 1998 1,500,000 -- 2,443 --
Acquisition of InfoCast by
VPS [note 1] 13,580,000 13,580 294,108 --
Common shares issued for cash 3,032,336 3,032 4,545,468 --
Share issuance costs -- -- (42,992) --
Common shares issued for
consulting services 60,000 60 337,740 (337,800)
Granting of stock options -- -- 11,788,250 (11,788,250)
Amortization of deferred
compensation -- -- -- 2,267,118
Net loss for the period -- -- -- --
Translation adjustment -- -- -- --
------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 18,172,336 16,672 16,925,017 (9,858,932)
==================================================================================================================
</TABLE>
See accompanying notes
F-7
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY cont'd
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
Accumulated
other Accumulated Total
comprehensive development stockholders'
Warrants loss stage deficit equity
$ $ $ $
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deemed common shares issued for
intellectual properties [note 1] -- -- -- 25
Deemed common shares issued
for cash [note 1] -- -- -- 45
Net loss for the period -- -- (96,161) (96,161)
Translation adjustment -- 1,632 -- 1,632
--------------------------------------------------------------------------------------------------------------------------------
Deemed balance as of
December 31, 1997 -- 1,632 (96,161) (94,459)
Deemed common shares issued
for cash [note 1] -- -- -- 2,373
Net loss for the period -- -- (423,872) (423,872)
Translation adjustment -- 19,291 -- 19,291
---------------------------------------------------------------------------------------------------------------------------------
Deemed balance as of
December 31, 1998 -- 20,923 (520,033) (496,667)
Acquisition of InfoCast by
VPS [note 1] -- -- -- 307,688
Common shares issued for cash -- -- -- 4,548,500
Share issuance costs -- -- -- (42,992)
Common shares issued for
consulting services -- -- -- --
Granting of stock options -- -- -- --
Amortization of deferred
compensation -- -- -- 2,267,118
Net loss for the period -- -- (3,083,921) (3,083,921)
Translation adjustment -- (6,614) -- (6,614)
---------------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 -- 14,309 (3,603,954) 3,493,112
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-8
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY cont'd
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
Common stock Additional
Common issued and paid-in Deferred
shares outstanding capital compensation
# $ $ $
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of March 31, 1999 18,172,336 16,672 16,925,017 (9,858,932)
Deemed common shares issued for
acquisition of Homebase Work
Solutions Ltd. 3,400,000 3,400 16,996,600 --
Common shares issued for cash and
marketable securities 2,999,000 2,999 17,956,501 --
Share issuance costs - cash -- -- (1,563,963) --
Share issuance costs - warrants -- -- (226,800) --
Issuance of convertible debentures with warrants -- -- 2,243,065 --
Warrants issued for consulting services -- -- -- --
Warrants issued to stockholders -- -- -- --
Adjustments resulting from revaluation
of stock options granted to
consultants in previous periods -- -- 963,557 --
Adjustments resulting from revaluation
of common shares granted to
consultants in previous periods -- -- 112,200 --
Adjustment to joint venture investment
to reflect dilution of ownership interest -- -- (6,984) --
Granting of stock options -- -- 4,803,780 --
Cancellation of stock options -- -- (269,250) --
Amortization of deferred compensation -- -- -- 8,181,441
Net loss for the period -- -- -- --
Unrealized loss on short-term equity investment -- -- -- --
Translation adjustment -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2000 24,571,336 23,071 57,933,723 (1,677,491)
================================================================================================================================
</TABLE>
F-9
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY cont'd
[U.S. dollars, U.S. GAAP]
<TABLE>
<CAPTION>
Accumulated
other Accumulated Total
comprehensive development stockholders'
Warrants loss stage deficit equity
$ $ $ $
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of March 31, 1999 -- 14,309 (3,603,954) 3,493,112
Deemed common shares issued for
acquisition of Homebase Work
Solutions Ltd. -- -- -- 17,000,000
Common shares issued for cash -- -- -- 17,959,500
Share issuance costs - cash -- -- -- (1,563,963)
Share issuance costs - warrants 226,800 -- -- --
Issuance of convertible debentures with warrants -- -- -- 2,243,065
Warrants issued for consulting services 643,875 -- -- 643,875
Warrants issued to stockholder 137,200 -- -- 137,200
Adjustments resulting from revaluation
of stock options granted to
consultants in previous periods -- -- -- 963,557
Adjustments resulting from revaluation
of common shares granted to
consultants in previous periods -- -- -- 112,200
Adjustment to joint venture investment
to reflect dilution of ownership interest -- -- -- (6,984)
Granting of stock options -- -- -- 4,803,780
Cancellation of stock options -- -- -- (269,250)
Amortization of deferred compensation -- -- -- 8,181,441
Net loss for the period -- -- (31,151,184) (31,151,184)
Unrealized loss on short-term equity investment -- (287,500) -- (287,500)
Translation adjustment -- 36,158 -- 36,158
---------------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2000 1,007,875 (237,033) (34,755,138) 22,295,007
=================================================================================================================================
</TABLE>
The accumulated other comprehensive loss balance as of March 31, 2000 includes a
net accumulated translation adjustment gain of $50,467 and an accumulated
unrealized loss on short-term equity securities of $287,500.
F-10
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
1. BASIS OF ACCOUNTING
Nature of operations and continuing entity
These consolidated financial statements are the continuing financial statements
of Virtual Performance Systems Inc. ["VPS"] [a development stage company], an
Ontario corporation which was incorporated on July 29, 1997. VPS had a 100%
interest in, and subsequently amalgamated with, Cheltenham Technologies
Corporation, an Ontario corporation. VPS has a 100% interest in Cheltenham
Interactive Corporation ["Cheltenham Interactive"], an inactive Ontario
corporation, and Cheltenham Technologies (Bermuda) Corporation ["Cheltenham
Bermuda"], a Barbados corporation which owns certain intellectual properties. On
January 29, 1999, VPS acquired the net assets of InfoCast Corporation [formerly
Grant Reserve Corporation] ["InfoCast"], a United States non-operating company
traded on the NASDAQ OTC Bulletin Board which had a 100% interest in InfoCast
Canada Corporation ["InfoCast Canada"]. After the acquisition, VPS continued
under the name of InfoCast Corporation.
InfoCast, InfoCast Canada, VPS, Cheltenham Interactive and Cheltenham Bermuda
are collectively referred to as the "Company". The Company is a development
stage technology company 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 as well as the additional
net convertible debenture proceeds of $2,325,000 received in April 2000 will be
sufficient to support the Company's growth 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 May 2001.
The Company is currently seeking to raise additional funds through private or
public financing, strategic or other relationships.
The functional currency of VPS, Cheltenham Interactive, Cheltenham Bermuda and
InfoCast Canada is the Canadian dollar. However, for reporting purposes, the
Company has adopted the United States dollar as its reporting currency.
Accordingly, the Canadian dollar balance sheets of these companies have been
translated into United States dollars at the rates of exchange at the respective
period ends, while transactions during the periods and share capital amounts
have been translated at the weighted average rates of exchange for the
respective periods and the exchange rate at the date of the transaction
respectively. Gains and losses arising from these translation adjustments are
included in comprehensive loss.
F-11
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Reverse acquisition of InfoCast Corporation
Pursuant to a share purchase agreement dated January 29, 1999, the shareholders
of VPS sold their 100% interest in VPS to InfoCast in consideration for
1,500,000 exchangeable shares of InfoCast Canada, a wholly-owned subsidiary of
InfoCast. The InfoCast Canada exchangeable shares are convertible into common
shares of InfoCast at no additional consideration. In addition, the shareholders
of VPS also purchased a further 9 million common shares of InfoCast from
InfoCast's former controlling shareholder, Sheridan Reserve Incorporated, in
consideration for a nominal cash amount. As a result of these two transactions,
the shareholders of VPS effectively acquired 10,500,000 common shares of
InfoCast which represents a controlling interest of approximately 70% [60%
excluding the exchangeable shares]. This transaction is considered an
acquisition of InfoCast [the accounting subsidiary/legal parent] by VPS [the
accounting parent/legal subsidiary] and has been accounted for as a purchase of
the net assets of InfoCast by VPS in these consolidated financial statements
because InfoCast had no business operations or operating assets at the time of
the acquisition.
These consolidated financial statements are issued under the name of InfoCast,
but are a continuation of the financial statements of the accounting acquirer,
VPS. VPS's assets and liabilities are included in the consolidated financial
statements at their historical carrying amounts. Figures presented to January
29, 1999 are those of VPS. For purposes of the acquisition, the fair value of
the net assets of InfoCast of $307,688 is ascribed to the 13,580,000 previously
outstanding common shares of InfoCast deemed to be issued in the acquisition as
follows:
$
--------------------------------------------------------------------------------
Cash 87
Note receivable from VPS 396,900
Payable to VPS (25,020)
Accounts payable (64,279)
--------------------------------------------------------------------------------
Purchase price 307,688
--------------------------------------------------------------------------------
F-12
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Prior to the acquisition on January 29, 1999, the deemed number of outstanding
shares of InfoCast is equal to the 1,500,000 exchangeable shares of InfoCast
Canada that were issued to the shareholders of VPS in the acquisition. These
shares have been allocated to the changes in the combined issued and outstanding
and additional paid-in-capital common stock of VPS to January 29, 1999 as
follows:
<TABLE>
<CAPTION>
Deemed
InfoCast VPS
shares shares Amount
# # $
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued for intellectual properties [note 3] 14 35 25
Issued for cash 27 65 45
-----------------------------------------------------------------------------------------
Outstanding as of December 31, 1997 41 100 70
Issued for cash 1,499,959 3,624,000 2,373
-----------------------------------------------------------------------------------------
Outstanding as of December 31, 1998
and January 29, 1999 prior to acquisition 1,500,000 3,624,100 2,443
-----------------------------------------------------------------------------------------
</TABLE>
The combined issued and outstanding and additional paid-in-capital common stock
of the continuing consolidated entity as of January 29, 1999 is computed as
follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------------
<S> <C>
Existing share capital of VPS as of January 29, 1999 prior to acquisition 2,443
Ascribed value of the acquired common shares of InfoCast 307,688
--------------------------------------------------------------------------------------
Share capital of InfoCast [formerly VPS] as of January 29, 1999 310,131
--------------------------------------------------------------------------------------
</TABLE>
The number of outstanding shares of InfoCast [formerly VPS] as of January 29,
1999 is computed as follows:
<TABLE>
<CAPTION>
Number
of shares
#
--------------------------------------------------------------------------------------
<S> <C>
Deemed share capital of InfoCast [formerly VPS] as of
January 29, 1999 prior to acquisition 1,500,000
Shares of InfoCast deemed issued by VPS 13,580,000
--------------------------------------------------------------------------------------
Shares of InfoCast [formerly VPS] as of January 29, 1999 15,080,000
--------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Acquisition of Homebase Work Solutions Ltd.
Pursuant to a share purchase agreement dated May 13, 1999, Homebase Work
Solutions Ltd. ["Homebase"] was acquired by the Company in consideration for
3,400,000 exchangeable shares of InfoCast Canada. The InfoCast Canada
exchangeable shares are convertible into InfoCast common stock on a one-for-one
basis at no additional consideration.
As a condition of the closing of the share purchase agreement, the Company paid
$285,480 [Cdn.$420,000] to officers of Homebase during the fiscal year ended
March 31, 2000.
The acquisition has been accounted for using the purchase method. The value of
the acquisition was $17,077,000, which included $77,000 of expenses directly
attributable to the acquisition. For accounting purposes the exchangeable shares
of InfoCast Canada have been valued at $5.00, which is equal to the price per
share received from the June 1999 private placement of the Company's common
stock. The total purchase price of $17,077,000 has been allocated as follows:
$
--------------------------------------------------------------------------
Cash 127,667
Other current assets 13,565
Capital assets 20,465
Completed technology 17,015,000
In-process research and development 19,000
Trademarks 853,000
Workforce-in-place 253,000
Goodwill 5,846,293
Deferred income taxes (6,886,000)
Accounts payable and accrued liabilities (82,145)
Due to the Company (102,845)
--------------------------------------------------------------------------
Purchase price 17,077,000
--------------------------------------------------------------------------
The completed technology, trademarks, workforce-in-place and goodwill will be
amortized over their respective useful lives of 5 years, 5 years, 3 years and 5
years. The in-process research and development was charged to income immediately
subsequent to the acquisition. The completed technology, trademarks and
workforce-in-place have been classified as intellectual property on the
consolidated balance sheets. The deferred income tax liability was created in
respect of the difference between the accounting and tax basis of the completed
technology, trademarks and workforce-in-place. The identification and the fair
values of the completed technology, in-process research and development,
trademarks and workforce-in-place were determined by management with the
assistance of an independent valuator.
The completed technology is comprised of Homebase's information hub, telework
and web-enabling technologies, together with the benefits of Homebase's
association with the National Environmental Policy Institute ["NEPI"]. NEPI is a
United States based non-profit environmental lobbyist group that promotes
telework policies in the United States.
The results of operations of Homebase during the post-acquisition 324-day period
ended March 31, 2000 have been consolidated with those of the Company.
F-14
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
The following pro-forma consolidated financial information presents certain
statement of operations data of the Company as if the Company had acquired
Homebase as of April 1, 1998. This pro-forma financial information is not
necessarily indicative of the results that actually would have occurred had the
Company acquired Homebase on the date indicated or which would be obtained in
the future.
Year ended Year ended
March 31, March 31,
2000 1999
$ $
--------------------------------------------------------------------------------
[unaudited] [unaudited]
Revenue 305,754 5,153
Net loss for the period (31,622,119) (7,253,830)
Basic and diluted loss per share (1.37) (1.03)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarized as follows:
Principles of consolidation
These consolidated financial statements include the accounts of InfoCast and its
subsidiaries, all of which are wholly-owned. Intercompany accounts and
transactions have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents represent cash and short-term investments with a
maturity date of less than three months when acquired.
F-15
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Change in year end
Effective for the period ended March 31, 1999, the Company changed its year end
from December 31 to March 31.
Capital assets
Capital assets are recorded at cost less accumulated depreciation. If it is
determined that a capital asset is not recoverable over its estimated useful
life, the capital asset will be written down to its fair value. Maintenance and
repairs are charged to expenses as incurred. Gains and losses on the disposition
of capital assets are included in income. Depreciation is provided using the
following annual rates and bases which are expected to amortize the cost of the
capital assets over their estimated useful lives:
Computer hardware and software 30% declining balance
Furniture and equipment 20% declining balance
Leasehold improvements 20% declining balance
Virtual Call Center solution 5 years straight-line
Assets under capital lease straight-line over the term of the lease
Intellectual property
Acquired intellectual property is recorded at cost and represents proprietary
rights to certain information delivery technologies. The capitalized costs of
the intellectual property is amortized on a straight-line basis over its
estimated useful life. If it is determined that an investment in intellectual
property is not recoverable over its estimated useful life, the intellectual
property will be written down to its fair value.
Distribution and licensing rights
Acquired distribution and licensing rights are recorded at cost. The capitalized
costs of the distribution and licensing rights will be amortized each period,
commencing when the electronically converted products and educational material
are available for distribution and license, at the greater of [i] the amount
calculated based on the straight-line method over the estimated useful life of 5
years or [ii] the amount calculated based on the ratio of current gross revenues
received from the licensing of the electronically converted products and the
hosting and delivery of educational material over the sum of the current and
future gross revenues anticipated to be received by licensing the electronically
converted products and hosting and delivering the educational material. If it is
determined that the investment in distribution and licensing rights is not
recoverable from estimated sales, the distribution and licensing rights will be
written down to their fair value.
Goodwill
Goodwill is being amortized over its estimated useful life of five years. The
Company assesses each quarter whether there is an other than temporary
impairment of the carrying value of the goodwill based on undiscounted expected
future cash flows. If the Company determines that there is a permanent
impairment of the carrying value of the goodwill, a write-down will occur in
that period.
F-16
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Revenue recognition
The Company generated revenue from hosting services, consulting services and the
resale of computer hardware. 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 computer hardware is
recognized upon shipment.
Research and development costs
Research and development costs are expensed in the year incurred.
Foreign currency measurement
In preparing the Company's Canadian dollar functional currency financial
statements, United States dollar monetary assets and liabilities are remeasured
in the Company's Canadian dollar functional currency at the period end rate of
exchange. The statements are then translated into the Company's United States
dollar reporting currency. Transactions in foreign currency are remeasured at
the dollar actual rates of exchange. Foreign currency remeasurement differences
are included in general and administrative expenses.
Stock options
As permitted by FASB Statement No. 123 ["FASB 123"], "Accounting for Stock-Based
Compensation", the Company has adopted the intrinsic value method of APB 25,
"Accounting for Stock Issued to Employees" in respect of stock options granted
to its employees and directors and FASB 123 in respect of stock options granted
to its consultants. The measurement date of options granted to consultants will
be the date the services are completed. For purposes of recognition of the cost
of the options prior to the measurement date such options are measured at their
then current fair value at each interim financial reporting date.
F-17
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Income taxes
The Company follows the liability method of providing for income taxes in
accordance with FASB Statement No. 109, "Accounting for Income Taxes".
Basic and diluted loss per common share
Per share amounts have been computed based on the weighted average number of
common shares outstanding each period. The weighted average number of common
shares outstanding prior to the acquisition on January 29, 1999 are based on the
number of VPS common shares outstanding during that period. 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 results would be anti-dilutive. Consequently, there is
no difference between the basic and dilutive net loss per share. The weighted
average number potential of common shares from options, warrants and convertible
securities for the year ended March 31, 2000 was 4,042,217 [three months ended
March 31, 1999 - 1,175,833; three months ended March 31, 1998 - nil; year ended
December 31, 1998 - nil; 156 day period ended December 31, 1997 - nil].
Use of estimates
Management uses estimates and assumptions in preparing consolidated financial
statements in accordance with accounting principles generally accepted in the
United States. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenue and expenses. Actual results could vary from the
estimates that are used.
3. INTELLECTUAL PROPERTY
The Company executed a Memorandum of Agreement dated July 31, 1997, whereby the
Company acquired certain intellectual property owned by an officer of the
Company, in consideration for 35 VPS common shares issued at Cdn.$1 per share.
The fair value of the intellectual property is $23 based on the fair value of
the 35 VPS shares issued in consideration thereof. The fair value per share in
respect of the 35 VPS shares issued for the intellectual property is consistent
with the cash proceeds received per share in respect of the other 65 VPS common
shares issued during 1997. The intellectual property purchased pursuant to this
agreement is completed technology and is related to electronic information
delivery algorithms. The Company is not using this electronic information
delivery algorithm and does not plan to use it in the future, therefore, this
intellectual property was written down to nil during the year ended March 31,
2000.
On November 17, 1998, the Company entered into a Purchase and Sale Agreement
with Advanced Systems Computer Consultants Inc., a company owned by the officer
of the Company noted above, pursuant to which the Company acquired certain
additional intellectual property rights. The intellectual property purchased
pursuant to this agreement is completed technology and relates to remote banking
software. The Company purchased the intellectual property rights for
consideration as follows:
F-18
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
[i] $51,601 [Cdn.$75,000] if the Company becomes a public corporation and has
completed a minimum financing of $2,000,000; and
[ii] $223,600 [Cdn.$325,000] if the purchased remote banking software generates
revenue.
The Company accrued the first installment in its accounts as at March 31, 1999
[$49,712 less accumulated amortization of $4,144] and paid this amount during
the year ended March 31, 2000. The Company is not using this remote banking
software and does not plan to use it in the future, therefore, this intellectual
property was written down to nil during the year ended March 31, 2000.
Acquired intellectual property consists of the following:
<TABLE>
<CAPTION>
2000
--------------------------------------------------------
Accumulated Net
amortization book
Cost and write-downs value
$ $ $
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Completed technology 17,066,624 3,060,715 14,005,909
Trademarks 853,000 150,853 702,147
Workforce-in-place 253,000 74,570 178,430
-------------------------------------------------------------------------------------------
18,172,624 3,286,138 14,886,486
-------------------------------------------------------------------------------------------
</TABLE>
1999
--------------------------------------------
Net
Accumulated book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
Completed technology 49,735 4,144 45,591
--------------------------------------------------------------------------------
F-19
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
4. Acquired distribution and licensing rights
Pursuant to a license agreement dated June 29, 1999, between the Company and ITC
Learning Corporation ["ITC"], the Company will become, for an unlimited term,
ITC's exclusive distance learning technology partner for the hosting and
delivery of educational material utilizing the A-STAR component within ITC's
Workforce Initiative Program for total consideration of $2,000,000, which was
paid by the Company during the year ended March 31, 2000.
The Company also entered into a separate distribution agreement with ITC in
March 1999. This distribution agreement provided the Company with the perpetual
non-exclusive right to market, sell and electronically convert all existing and
future ITC products in consideration for $1,000,000 in respect of electronic
distribution to the first 150,000 licensed purchasers. In the event that the
Company effects distribution to more than 150,000 licensed purchasers, the
Company and ITC will share the revenue generated therefrom based on a revenue
sharing formula. The total consideration was subsequently reduced to $975,000
and was paid by the Company in two installments in March and May 1999.
5. CAPITAL ASSETS
Capital assets consist of the following:
<TABLE>
<CAPTION>
2000
------------------------------------------------------
Net
Accumulated book
Cost amortization value
$ $ $
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software 568,301 140,789 427,512
Office equipment 266,439 52,685 213,754
Leasehold improvements 17,285 3,569 13,716
Virtual Call Centre solution 858,711 -- 858,711
Computer equipment under capital lease 1,923,911 312,763 1,611,148
Other assets under capital lease 30,700 2,558 28,142
-----------------------------------------------------------------------------------------------------
3,665,347 512,364 3,152,983
-----------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
<TABLE>
<CAPTION>
1999
-----------------------------------------------------
Net
Accumulated book
Cost amortization value
$ $ $
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software 64,899 7,684 57,215
Office equipment 49,220 1,887 47,333
Leasehold improvements 2,979 135 2,844
-----------------------------------------------------------------------------------------------------
117,098 9,706 107,392
-----------------------------------------------------------------------------------------------------
</TABLE>
6. RELATED PARTY TRANSACTIONS
The amount due to related parties consists of amounts due to current and past
officers of the Company. The amounts are non-interest bearing and payable on
demand. The balances relate to expenditures incurred and services performed on
behalf of the Company, except for Cdn.$25,000 of the amount due as at March 31,
1999 and December 31, 1998 which relates to cash advances provided to the
Company, and $49,710 [Cdn.$75,000] of the amount due as of March 31, 1999 and
December 31, 1998 which relates to the intellectual property described in note
3.
During the year ended March 31, 2000, the Company incurred expenses of nil
[March 31, 1999 - nil, December 31, 1998 - $59,319; December 31, 1997 - $42,119]
for managerial and consulting services from Advanced Systems Computer
Consultants and nil [March 31, 1999 - nil; December 31, 1998 - $30,526; December
31, 1997 - nil] for consulting services provided by a company controlled by a
shareholder and former director of the Company.
During the year ended March 31, 2000, the Company incurred expenses of $142,740
[Cdn. $210,000] [March 31, 1999 - $26,981; December 31, 1998 - $16,178; December
31, 1997 - nil]] for consulting services provided by a company owned by a
shareholder and the Co-Chairman of the Company. The Company will continue to pay
a monthly consulting fee of $10,195 [Cdn.$15,000] while services are being
rendered.
During the year ended March 31, 2000, the Company paid consulting fees to a
shareholder beneficially owning greater than 5% of the outstanding shares of the
Company, in the amount of $71,370 [Cdn.$105,000] [March 31, 1999 - nil] for
consulting services related to business development and advice on potential
acquisitions.
During the year ended March 31, 2000, general, administration and selling
expenses include $214,110 from the above related party transactions [March 31,
1999 - $26,981; December 31, 1998 - $106,023; December 31, 1997 - $42,119].
Revenues for the year ended March 31, 2000 include $15,633 of hosting services
provided to a company that has a director that is an officer of the Company
[March 31, 1999 - nil; December 31, 1998 - nil; December 31, 1997 - nil].
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company entered into a lease agreement on June 25, 1999 for the lease of a
Sun Microsystems Enterprise 10000 computer and paid a deposit of $481,600
[Cdn.$700,000] at the
F-21
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
time of execution. Future minimum annual lease payments under this and other
smaller capital leases expiring at various dates to March 2003 are as follows:
$
----------------------------------------------------------------------
2001 579,167
2002 566,259
2003 294,156
----------------------------------------------------------------------
Total minimum lease payments 1,439,582
Less amount representing interest at 9.75% to 10.75% 156,933
----------------------------------------------------------------------
Balance of obligations 1,282,649
Less current portion 479,813
----------------------------------------------------------------------
802,836
======================================================================
The computers and equipment acquired pursuant to the capital leases have been
included in capital assets [note 5] and the depreciation on the computers and
equipment has been charged to the consolidated statements of operations and
comprehensive loss.
F-22
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
8. SHARE CAPITAL
Authorized
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.
Issued and outstanding common stock
<TABLE>
<CAPTION>
Common stock issued and
outstanding and
additional paid-in-capital
Shares Amount
# $
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding as of January 29, 1999 [note 1] 15,080,000 310,131
Private placement at $1.50 per share 3,032,336 4,548,500
Issuance of shares in consideration for consulting services 60,000 337,800
Share issuance costs -- (42,992)
---------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 1999 18,172,336 5,153,439
Acquisition of Homebase Work Solutions Ltd. [note 1] 3,400,000 17,000,000
Private placement at $5.00 per share 420,000 2,100,000
Private placement at $5.50 per share 1,879,000 10,334,500
Private placement, other 500,000 4,187,500
ACT settlement [note 15] 200,000 1,337,500
Share issuance costs -- (1,790,763)
---------------------------------------------------------------------------------------------------------------
Outstanding as of March 31, 2000 24,571,336 38,322,176
===============================================================================================================
</TABLE>
Exchangeable shares
The number of shares of common stock outstanding as of March 31, 2000 includes
3,327,208 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.
F-23
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Securities Purchase Agreement
Pursuant to a Securities Purchase Agreement dated June 24, 1999, the Company
issued, by way of a private placement, 420,000 shares of common stock to the
agent at $5.00 per share for gross proceeds of $2,100,000, net of commissions of
$210,000.
Also pursuant to the Securities Purchase Agreement, the Company issued warrants
to purchase 70,000 shares of common stock on June 24, 1999 to the placement
agent. Each warrant has an exercise price of $7.00, expires June 23, 2001 and
has been valued at $3.24 in the accounts based on an expected volatility factor
of 0.715 and a risk-free interest rate of 5.1%. As a result, $226,800 was
charged to share issuance costs during the year ended March 31, 2000.
Private placements
From July to November 1999, the Company completed the private placement of
1,879,000 shares of common stock at $5.50 per share for gross proceeds of
$10,334,500 excluding an agent's fee of $1,033,329.
In February 2000 the Company received 150,000 shares of common stock of another
publicly traded corporation in consideration for 500,000 shares of common stock
of the Company issued by way of private placement. The Company recorded the
issuance of its shares of common stock at the $8.375 per share fair value of the
Company's common stock on the date of the transaction. The shares of common
stock of the other public company received as consideration, net of 20,000 of
the shares payable as a commission to the agents, have been recorded as a
short-term equity investment and classified as "available for sale". The
carrying value of the short-term investment was adjusted to its market value as
at March 31, 2000, resulting in an unrealized loss of $287,500 included in the
comprehensive loss for the period. In addition to the transfer of ownership of
20,000 shares of common stock of the short-term investment to the agents, the
Company has accrued a $100,000 cash commission to the agents of this private
placement.
As of May 5, 2000, the market value of the short-term investment decreased to
approximately $2,200,000.
F-24
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
Stock options
1998 Stock Option Plan
As of March 31, 2000, 2,250,000 shares of common stock were reserved for the
exercise of stock options granted to various individuals involved in the
management of VPS, including 375,000 options originally granted to consultants,
pursuant to the Company's 1998 Stock Option Plan as amended on January 29, 1999.
The options were granted as follows: 2,075,000 on February 8, 1999 and 175,000
on February 1, 2000 and are exercisable at a price of $1.00 per share. Effective
April 1, 1999, an individual initially classified as an employee and who had
been granted 250,000 options became a consultant, while on May 13, 1999 an
individual initially classified as a consultant and who had been granted 100,000
options became an employee. As a result, as at March 31, 2000, 700,000 of the
options are held by consultants, while 1,550,000 are held by employees and
directors.
The options granted on February 8, 1999 expire three years from the date of
grant and were fully vested as of March 31, 2000. Of the 275,000 stock options
that were originally granted to individuals still classified as consultants that
were originally determined based on the fair market value of the options on the
date of grant, $5.87 per option, were revalued as of the August 8, 1999 vesting
date to the then current fair value of $9.06 per stock option [based on a
revised volatility of 1.019 and the August 8, 1999 closing market price of
$10.00 per share of common stock]. This revaluation resulted in a charge to
stock option compensation expense of $2,109,537 during the year ended March 31,
2000. Stock option compensation expense of $1,116,205 was charged to income
during the year in respect of the 250,000 options granted to the individual that
became a consultant during the year, while stock option compensation expense of
$503,033 was charged to income during the year in respect of the 100,000 options
granted to the individual that became a director during the year. Stock
compensation expense of $6,586,544 was charged to income during the year ended
March 31, 2000 in respect of the remaining 1,450,000 stock options originally
granted to individuals still classified as employees and directors that are
accounted for utilizing the intrinsic value method.
The 175,000 options granted on February 1, 2000 expire two years from the date
of grant, vest on July 12, 2000 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 March 31, 2000 to the then current fair value of
$6.07 per stock option [based on an expected dividend rate of 0%, an expected
life of one year, a risk-free rate of 6.18%, an expected volatility factor of
0.873 and the March 31, 2000 closing market price of $7.00 per share of common
stock]. These options have been valued at $1,062,250 of which $386,273 has been
recognized as a stock option compensation expense during the year ended March
31, 2000 and of which the balance of $675,977 has been recorded as deferred
compensation in stockholders' equity.
F-25
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
1999 Stock Option Plan
The directors and stockholders of the Company approved the 1999 Stock Option
Plan under which an additional 2,000,000 stock options are eligible for grant.
As of March 31, 2000, the Company had 1,805,000 shares of common stock reserved
for the exercise of stock options granted to various employees, officers,
consultants and advisors pursuant to the 1999 Stock Option Plan as follows:
Option price Expiry
Grant date Options per share date
# $
-----------------------------------------------------------------------------
June 1, 1999 910,000 7.00 June 1, 2004
November 19, 1999 400,000 7.00 November 19, 2004
December 8, 1999 375,000 7.05 December 8, 2004
February 18, 2000 20,000 7.00 February 8, 2005
February 29, 2000 100,000 8.625 February 29, 2005
-----------------------------------------------------------------------------
1,805,000
=============================================================================
The options granted on June 1, 1999 were 100% vested as of March 31, 2000. The
options granted on November 19, 1999 and December 8, 1999 are subject to a
vesting period from immediate to two years. The options granted on February 18,
2000 vest as follows: 5,000 on the date of grant and 5,000 on each of February
18, 2001, February 18, 2002 and February 18, 2003. The options granted on
February 29, 2000 vest as follows: 33,333 upon the employee assuming their
position at the Company, 33,333 on March 1, 2001 and 33,334 on March 1, 2002.
Of 1,180,500 options originally granted on June 1, 1999 pursuant to the 1999
Stock Option Plan, 270,500 were cancelled in November 1999 leaving a balance of
910,000 outstanding as of March 31, 2000. Of the 910,000 stock options
outstanding as of March 31, 2000, 700,000 were granted to employees and 210,000
were granted to consultants and advisors. The 210,000 outstanding stock options
granted to consultants and advisors have been valued at $527,100 [based on a
weighted average expected dividend rate of 0%, weighted average expected life of
1 year, weighted average risk-free interest rate 5.46% and a weighted average
expected volatility factor of 0.805] which has been recognized as a stock option
compensation expense during the year ended March 31, 2000. The deferred
compensation in respect of the 700,000 stock options granted to employees and
directors was nil because the exercise price of the options was equal to the
market price of the shares of common stock on the date of grant. Of the 270,500
stock options that were cancelled, 195,500 had been granted to consultants and
had vested at the time of cancellation which resulted in stock option
compensation expense of $422,280 being recorded in the year ended March 31,
2000.
The deferred compensation in respect of the stock options granted to employees
on November 19, 1999, February 18, 2000, February 29, 2000 and 25,000 of the
stock options granted on December 8, 1999 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 350,000 stock options granted on December 8, 1999
have been valued at $113,750 of which $52,136 has been recognized as a stock
option compensation expense during the year ended March 31, 2000, and of which
the balance of $61,614 has been recorded as deferred compensation in
stockholders' equity. The
F-26
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
measurement date of the 350,000 stock options granted on December 8, 1999 was
January 4, 2000, the date when the employee commenced employment.
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 are
exercisable at a price of $7.00 per share, expire five years from the date of
grant and vest as follows: 250,000 on September 4, 1999 upon the acceptance by
the individual of formal employment with the Company, 250,000 on September 4,
2000 and 250,000 on September 4, 2001. These outstanding options have been
valued at $2,437,500 of which $1,523,437 has been recognized as a stock option
compensation expense during the year ended March 31, 2000, and of which the
balance of $914,063 has been recorded as deferred compensation in stockholders'
equity. The measurement date in respect of these stock options was September 4,
1999.
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 is to
provide financial and investor relations consulting services to the Company. The
stock options are exercisable at a price of $8.25 per share, expire two years
from the date of grant and vest as follows: 15,000 on January 14, 2000, 15,000
on March 15, 2000, 15,000 on June 15, 2000 and 15,000 on September 15, 2000.
These outstanding options have been valued at $151,200 [based on an expected
dividend rate of 0%, an expected life of one year, a risk-free rate ranging from
5.83% to 6.18% and an expected volatility factor of 0.873] of which $125,363 has
been recognized as a stock option compensation expense during the year ended
March 31, 2000, and of which the balance of $25,837 has been recorded as
deferred compensation in stockholders' equity. The deferred compensation for the
then current fair value at each interim reporting financial reporting date will
be amortized over the remaining vesting periods of the options. 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.
F-27
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
A summary of the Company's stock option activity is as follows:
Weighted
average
Number of exercise
options price
# $
-------------------------------------------------------------------------------
Outstanding as of January 1, 1999 -- --
Granted 2,250,000 1.00
Exercised -- --
Forfeited -- --
Cancelled (175,000) 1.00
------------------------------------------------------------------------------
Outstanding as of March 31, 1999 2,075,000 1.00
Granted 3,060,500 6.74
Exercised -- --
Cancelled - not vested (75,000) 7.00
Cancelled - vested (195,500) 7.00
------------------------------------------------------------------------------
Outstanding as of March 31, 2000 4,865,000 4.28
------------------------------------------------------------------------------
Exercisable as of March 31, 2000 3,628,336 3.60
==============================================================================
In April 2000, 300,000 of the options granted under the 1998 Stock Option Plan
and 100,000 of the options granted under the 1999 Stock Option Plan were
cancelled.
Pro forma net loss
If the Company had been following 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 year ended March 31,
2000 of $2,990,493 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 $34,141,677 and a pro-forma basic and
diluted loss per share of $1.51 in respect of the year ended March 31, 2000.
F-28
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 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:
Weighted
average
-------------------------------------------------------------
Expected dividend rate 0%
Expected life 1.5 years
Risk-free interest rate 5.30%
Expected volatility 0.8087
=============================================================
Issuance of shares in consideration for consulting services
Pursuant to an agreement dated March 22, 1999, the Company issued 60,000 shares
of common stock to a financial investment-consulting firm on March 22, 1999 in
consideration for assistance in securing additional financing over the following
year. The measurement date for these shares of common stock was March 22, 2000,
at which time the market value of the common shares was $7.50, which resulted in
a charge to general and administrative expenses of $439,820 during the year
ended March 31, 2000.
Other warrants
Pursuant to a letter agreement dated May 20, 1999 with an investor relations
company and subsequent negotiations in October 1999, the Company was obligated
to pay a total of $75,000 and issue warrants to purchase 75,000 shares of common
stock in consideration for consulting services during the period from June 1,
1999 to May 31, 2000. The payments were to be made and warrants issued for
services in advance. The following payments have been made and the following
warrants have been issued: $25,000 and 25,000 warrants on June 1, 1999 and
$12,500 and 12,500 warrants on each of October 6, 1999 and January 1, 2000. The
Company terminated the agreement in March 2000 and does not intend to make any
additional payments nor issue additional warrants. Based on an expected dividend
rate of 0%, a volatility factor of 0.963 and a risk-free interest rate of 5.10%,
the Company valued the 25,000 warrants issued on June 1, 1999 with a purchase
price of $7.00 per share, at $149,750 which is the fair market value as of the
August 31, 1999 measurement date. Based on a volatility factor of 0.914, an
expected dividend rate of 0% and a risk-free interest rate of 6.10%, the Company
valued the 12,500 warrants issued on October 6, 1999 with a purchase price of
$8.75 per share, at $33,250 which is the fair market value as of the November
30, 1999 measurement date. Based on an expected dividend rate of 0%, a
volatility factor of 0.873 and a risk-free interest rate of 6.18%, the Company
valued the 12,500 warrants issued on January 1, 2000 with a purchase price of
$7.62 per share, at $28,875 which is the fair market value as of the March 31,
2000 measurement date. All warrants issued under this agreement will be
exercisable on or after June 1, 2000 and expire May 31, 2001. The Company
charged $211,875 to general and administrative expenses in respect of these
warrants during the year ended March 31, 2000.
On June 1, 1999, the Company issued warrants to purchase 200,000 shares of
common stock to parties in consideration for past consulting services to the
Company. These warrants have a purchase price of $7.00, are exercisable on or
after June 1, 2000 and expire May 31, 2001. These warrants have been valued at
$432,000 in the accounts based on a volatility factor of 0.744, an
F-29
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
expected dividend rate of 0% and a risk-free interest rate of 5.10% and have
been charged to general and administrative expenses.
On February 11, 2000, the Company issued warrants to purchase 56,000 shares of
common stock to a shareholder of the Company for no consideration. These
warrants have a purchase price of $5.00, are exercisable on or after February
11, 2000 and expire February 10, 2002. These warrants have been valued at
$137,200 in the accounts based on a volatility factor of 0.840 and a risk-free
interest rate of 5.95% and have been charged to general and administrative
expenses.
9. CONVERTIBLE DEBENTURES
On March 30, 2000, the Company issued 3,500 units by way of a private placement
at $1,000 per unit for gross proceeds of $3,500,000. 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. 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 388,889 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 has been valued at
$1,913,482 and has been included in interest expense as the option was
exercisable upon issuance.
Cash commission costs of $275,000 were paid relating to the issuance of these
debentures and were recorded as a deferred charge as of March 31, 2000. In
addition, the Company issued agent common stock purchase warrants to purchase
97,222 shares of common stock at $7.50 per share to the agents as a placement
fee. These warrants have been valued at $329,583, based on a Black-Scholes
valuation utilizing a volatility factor of 0.864, an expected life of 2 years
and a risk-free interest rate of 5.95%, and have been recorded as a deferred
charge. The deferred charges related to this placement will be amortized on a
straight-line basis over the 5-year life of the debentures.
On April 4, 2000, the Company completed the sale of an additional 2,500 units
for gross proceeds of $2,500,000 with identical terms as the debentures issued
on March 30, 2000.
10. COMMITMENTS
[a] Lease commitments
The Company leased premises and equipment under non-cancellable operating
leases, which require future minimum annual lease payments as follows:
$
-----------------------------------------------------------------------
2001 331,542
2002 241,622
F-30
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
2003 181,573
2004 172,272
2005 88,338
-----------------------------------------------------------------------
1,015,347
=======================================================================
The rental payments for the premises are exclusive of taxes and operating costs.
During the year ended March 31, 2000, the Company incurred rent expense of
$384,334 [March 31, 1999 - $38,382; March 31, 1998 - $4,044; December 31, 1998 -
$16,701; December 31, 1997 - $5,711].
[b] CosmoCom, Inc.
Pursuant to a summary of terms and conditions for a definitive agreement between
the Company and CosmoCom, Inc. dated April 1999, the Company intended to
purchase licenses for CosmoCom, Inc.'s CosmoCall software. Under this summary,
the Company placed an initial order for 300 licenses for total consideration of
$754,500. The Company has taken delivery of the 300 licenses and paid license
fees of $475,650 in the year ended March 31, 2000. The balance of $278,850 is to
be paid in three monthly installments beginning April 1, 2000. The Company
capitalized the $754,500 to the Virtual Call Centre [note 5] during the year
ended March 31, 2000 as the licenses represent completed software that will be
incorporated into the Company's virtual call centre solution currently in
development.
F-31
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
11. PREPAID ROYALTIES
On February 24, 2000, InfoCast and Innatrex Inc. ["Innatrex"] entered into an
Application Service Provider Agreement ["ASP Agreement"] which allows InfoCast,
among other things, to incorporate Innatrex's software product into its product
offerings and license the Innatrex software product to third parties. In
consideration, InfoCast will pay royalties to Innatrex, of which the Company has
prepaid $207,857 [Cdn.$300,000]. The Company has recorded this prepayment as a
prepaid expense and will amortize the balance as it sublicenses Innatrex's
software product.
12. 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 is to develop a web-enabled
trading business model for crude oil and natural gas liquids and other products.
Initial funding for Newco will be by way of loans from the shareholders. Under
the agreement, the Company is required to provide the following: [i] $258,000
[Cdn.$375,000] as required by cash calls approved by the Board of Directors of
Newco, [ii] development, marketing and technical expertise for the development
and sales of products and services marketed by Newco, [iii] temporary office
space at the Company's existing Calgary office location at a cost to be mutually
agreed to by the Company and Newco, and [iv] accounting and administrative
support services until such time as Newco's business develops to an adequate
size to support a dedicated staff.
As of March 31, 2000, the Company had advanced a total of $171,721
[Cdn.$249,595] to Newco; $3,440 [Cdn.$5,000] for the initial purchase of common
shares and $168,281 in the form of shareholder loans which have a conversion
feature attached allowing the Company to convert the advances into additional
shares of Newco.
Newco issued additional common shares in the three-month period ended March 31,
2000 resulting in the dilution of the Company's ownership in Newco from 50% to
2.13% [34.48% on a fully diluted basis] as of March 31, 2000.
A further $86,278 [Cdn.$125,405] was advanced by the Company to Newco in April
2000, also in the form of a shareholder loan which has the same conversion
feature, that had the effect of increasing the Company's fully diluted ownership
interest to approximately 34%. The Company has accounted for this investment
using the equity method.
F-32
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
13. INCOME TAXES
As of March 31, 2000, the Company has accumulated non-capital losses of
approximately Cdn. $10,030,000 [approximately $7,100,000] for Canadian income
tax purposes which are available to reduce future years' taxable income. Of
these carryforward amounts, approximately Cdn. $319,000 [approximately $219,000]
resulted from the acquisition of Homebase [note 1] and if realized the tax
benefit of the unrecognized loss carryforward will be applied to reduce the
goodwill related to the acquisition of Homebase. The future income tax benefits
associated with these non-capital losses have not yet been recognized in the
accounts. These non-capital losses will expire as follows:
Cdn. $
----------------------------------------------------------------------------
2002 125,000
2003 625,000
2004 126,000
2005 325,000
2006 120,000
2007 8,709,000
----------------------------------------------------------------------------
10,030,000
============================================================================
The Company has recorded no United States current federal income tax expense or
benefit. As of March 31, 2000, the Company has accumulated net operating losses
of approximately $3,939,000 for United States income tax purposes which are
available to reduce future years' taxable income. The future income tax benefits
associated with these net operating losses have not yet been recognized in the
accounts. These net operating losses will expire as follows:
$
---------------------------------------------------------------------------
2018 568,000
2019 823,000
2020 2,548,000
---------------------------------------------------------------------------
3,939,000
===========================================================================
F-33
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
The Company has a United States capital loss carryforward of approximately
$5,939,000. A capital loss carryforward may only be used to reduce capital gains
and cannot be applied against taxable ordinary income that might be earned by
the Company. These capital loss carryforwards will expire as follows:
$
----------------------------------------------------------------
2003 5,339,000
2004 600,000
----------------------------------------------------------------
5,939,000
----------------------------------------------------------------
Utilization of the United States net operating loss carryforwards and the
capital loss carryforwards are subject to the loss limitations rules which may
substantially limit the annualization of these losses due to the ownership
change that occurred on January 29, 1999 [note 1]. Such annual limitations may
result in the expiration of all or a portion of the loss carryovers before
utilization.
A deferred tax asset has been established relating to the operating and capital
loss carryforwards and the timing differences between the Company's tax and
financial reporting basis. A valuation allowance equal to the entire amount of
the deferred tax asset has been established due to the uncertainty of the future
utilization of the operating and capital loss carryforwards.
Following are the components of the Company's deferred tax liability balances:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
$ $
-----------------------------------------------------------------------------------------
<S> <C>
Homebase acquisition [note 1] (5,656,895) --
Future tax benefit of Canadian loss carryforwards 3,082,986 559,887
Canadian book depreciation in excess of
tax depreciation 63,092 (559,887)
Canadian valuation allowance (3,146,078) --
Future tax benefit of United States
net operating loss carryforwards 1,354,000 386,000
Future tax benefit of United States
capital loss carryforwards 2,257,000 2,029,000
Other United States amounts 1,711,000 2,000
United States valuation allowance (5,322,000) (2,417,000)
-----------------------------------------------------------------------------------------
(5,656,895) --
=========================================================================================
</TABLE>
The deferred income tax recovery recorded on the consolidated statements of
operations and comprehensive loss for the year ended March 31, 2000 is in
respect of the decrease in the difference between the accounting and tax basis
of the completed technology, trademarks and workforce-in-place created upon the
acquisition of Homebase [note 1] from the May 13, 1999 acquisition date to March
31, 2000.
F-34
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
14. CONTINGENCIES
Fair value of financial instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments". The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
The fair values of financial instruments classified as current assets or
liabilities including cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities as of March 31, 2000 approximate their
carrying values due to the short-term maturity of the instruments. The fair
values of the convertible debentures as of March 31, 2000 approximate its
carrying value.
Concentration of credit risk
The Company invests its cash and cash equivalents primarily with a major
Canadian chartered bank. Certain deposits, at times, are in excess of limits
insured by the Canadian government. The Company believes the financial
institutions holding the Company's deposits are financially sound. Accordingly,
minimal credit risk exists.
Note receivable from Cherokee Mining Company Inc.
Pursuant to an agreement dated November 23, 1998, as amended April 20, 1999, and
effective December 18, 1998, InfoCast [the acquired entity] sold its equity
interest in its two subsidiaries, Gold King Mines Corporation ["Gold King"] and
Madison Mining Corporation ["Madison Mining"] to Cherokee Mining Company Inc.
["Cherokee"], a company controlled by a former director of InfoCast, for [i] a
non-interest bearing note of $600,000 due November 25, 1999 and [ii] the
entitlement to 80% of the net proceeds received by Madison Mining and Gold King
in excess of $681,175 from the sale of their mining properties and assets.
F-35
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
InfoCast did not record a value on the $600,000 note receivable because of the
uncertainty of whether the management of Cherokee, Gold King and Madison Mining
would be able to sell the capital assets of Gold King and Madison Mining for
sufficient proceeds to enable the note to be repaid to InfoCast. As a result,
VPS did not reflect the note in the purchase equation upon the acquisition of
InfoCast in January 1999.
Pursuant to a Termination Agreement executed during the year ended March 31,
2000, [i] the agreement dated November 23, 1998 was terminated, [ii] the
non-interest bearing note of $600,000 due November 25, 1999 was cancelled, [iii]
Cherokee entered into a purchase and sale agreement with another company
pursuant to which Cherokee will sell the equity interest in Gold King and
Madison Mining to the other company in consideration for, amongst other things,
a promissory note for the principal sum of $250,000 plus interest at a rate per
annum equal to the prime rate, due on July 29, 2004, [iv] Cherokee assigned to
InfoCast the $250,000 promissory note from the other company and [v] Cherokee
agreed to pay InfoCast $22,670. InfoCast received payment of the $22,670 in
December 1999 and credited this amount to income. InfoCast did not record a
value on the $250,000 promissory note receivable because of the uncertainty of
collection. In the event the promissory note is repaid, the amount will be
credited to income.
15. settlement with Applied Courseware Technology (A.C.T.) Inc.
Pursuant to a Letter of Intent dated February 10, 1999, as amended, between the
Company and Applied Courseware Technology (A.C.T.) Inc. ["ACT"], the Company
intended to purchase a 100% interest in ACT.
In September 1999 the Company made the decision not to proceed with the
acquisition of ACT, which ACT contested. On January 7, 2000, the Company reached
a final settlement with the shareholders of ACT whereby the Company paid $68,800
[Cdn.$100,000] in consideration for certain capital assets and the reimbursement
of expenses incurred by ACT relating to the purchase agreement, which amount is
included in the accounts as of March 31, 2000. In addition, the Company forgave
a note for $95,242 [Cdn.$140,000], including interest of $3,443 and as a result
wrote the amount receivable down to nil. The Company also issued 200,000 shares
of common stock of the Company to two shareholders of ACT and recorded an
expense in the accounts at the fair value of the common shares issued at the
date of the settlement.
During the year ended March 31, 2000, the Company made cash advances to ACT
totalling $559,873 [Cdn.$823,629] to fund certain development expenditures
incurred by ACT on behalf of the Company. These advances, in addition to $47,390
[Cdn.$70,000] that was outstanding as of March 31, 1999, have been charged to
research and development expenses during the year ended March 31, 2000.
F-36
<PAGE>
InfoCast Corporation
[formerly Virtual Performance Systems Inc.] [a development stage company]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars except where otherwise noted]
March 31, 2000
16. SUBSEQUENT EVENTS
Investor relations agreement
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
[at an exercise price of $6.50 and expiring in 5 years] to a financial advisor
in consideration for general corporate financial advisory and investor and 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 financial advisor is involved.
Merger with i360, Inc.
On February 17, 2000, the Company entered into a letter of agreement with i360,
Inc. ["i360"] and the shareholders of i360, whereby the parties agreed for the
Company and i360 to merge. On May 3, 2000, the Company and i360 executed a
definitive Agreement and Plan of Merger providing for the acquisition by the
Company of all of the outstanding shares of common stock of i360. The Agreement
and Plan of Merger amended the terms agreed to in the letter of agreement and
provides for a statutory merger of i360 into InfoCast, pursuant to which the
holders of i360's issued and outstanding common stock will be entitled to
receive 0.30 shares of InfoCast common stock per share of i360 common stock,
which will result in an aggregate of 7,584,000 shares of InfoCast common stock
being issued. In addition, all outstanding warrants and stock options to
purchase shares of i360 common stock will convert into merger warrants and stock
options to purchase shares of the Company's common stock at a 1:0.3 exchange
ratio which will result in an aggregate of 4,416,000 merger warrants of the
Company with an exercise price of $0.33 per share and 1,030,803 stock options
with an exercise price of $4.00 per share being issued. The transaction, which
has been approved by the Boards of Directors of InfoCast and i360, is subject to
approval by the stockholders of i360 and InfoCast, successful completion of any
regulatory approvals and certain other conditions. 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:
33.3% on May 2, 2001, 33.3% on May 2, 2002 and 33.3% on May 2, 2003.
F-37
