FORM 10-QSB
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _______________.
Commission file number: 000-28743
WORLDCAST INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-06939498
--------------------- -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2821 East Commercial Blvd., Suite 202, FT. Lauderdale, FL 33308
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 771-7950
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 30, 2000, there were 25,023,443 shares of Common Stock, par
value $.001 per share, and 865,067 shares of Series B Preferred Stock, par value
$.001 outstanding.
<PAGE>
WORLDCAST INTERACTIVE, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
<PAGE>
Unaudited Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
A S S E T S
Current Assets:
Cash and cash equivalents $ 241,973 $ 1,017
Accounts receivable, net 1,715,420 2,255
Work in process 73,228 --
Note receivable, related party 5,000 --
Other current assets 141,220 --
----------- -----------
Total Current Assets 2,186,840 3,272
Property and Equipment, net 66,278 51,931
Goodwill, net 4,855,398 --
Other non-current assets 92,749 --
----------- -----------
Total assets $ 7,191,265 $ 55,203
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,359,555 $ 2,199,050
Warranty liability 365,167 447,000
Due to officers 23,687 221,586
Line of credit 700,000 --
Current portion, notes payable 97,984 523,324
Current portion, deferred compensation payable 240,000 --
Notes payable-STI -- 150,347
Bridge financing -- 588,000
----------- -----------
Total Current Liabilities 4,786,393 4,129,307
Deferred compensation payable, non-current 787,204 --
Notes payable, non-current 493,752 --
----------- -----------
Total Liabilities 6,067,349 4,129,307
----------- -----------
Stockholders' Equity:
Series B convertible preferred stock,$.001 par value,
5,000,000 authorized, 865,067 issued 865 --
Common stock,$.001 par value, 100,000,000 authorized,
25,023,443 and 9,481,195 shares issued and outstanding as of
September 30, 2000 and December 31, 1999, respectively 53,287 37,925
Additional paid-in capital 11,391,041 4,603,214
Unamortized consulting - share appreciation rights (316,603) --
Notes receivable-officers (1,656,097) (1,808,560)
Interest receivable-notes receivable officers (244,558) --
Accumulated deficit (8,104,019) (6,906,683)
----------- -----------
Total Stockholders'equity/(deficit ) 1,123,916 (4,074,104)
----------- -----------
Total liabilities and shareholders' deficit $ 7,191,265 $ 55,203
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
WORLDCAST INTERACTIVE, INC.
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 1,679,849 $ 152,031 $ 1,679,849 $ 51,084
Cost of goods sold 1,402,067 255,999 1,402,067 74,485
----------- ----------- ----------- -----------
Gross margin 277,782 (103,968) 277,782 (23,401)
----------- ----------- ----------- -----------
Selling, general and
administrative expenses 1,413,300 1,446,557 749,989 740,616
----------- ----------- ----------- -----------
Operating loss (1,135,518) (1,550,525) (472,207) (764,017)
----------- ----------- ----------- -----------
Other Income (Expenses):
Other, net 245,617 -- 245,617 --
Interest expense (307,435) (21,990) (72,241) (18,170)
----------- ----------- ----------- -----------
(61,819) (21,990) 173,375 (18,170)
----------- ----------- ----------- -----------
Net loss $(1,197,336) $(1,572,515) $ (298,831) $ (782,187)
=========== =========== =========== ===========
Net loss per share of
common stock-Basic $ (0.11) $ (0.22) $ (0.01) $ (0.08)
=========== =========== =========== ===========
Weighted average common
shares outstanding-Basic 11,110,220 7,088,629 24,626,414 9,574,904
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
WORLDCAST INTERACTIVE, INC.
Unaudited Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Notes Total
Common Stock Paid-in Receivable Accumulated Stockholders'
Shares Amount Capital Officers Deficit Equity
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 9,481,195 $ 37,925 $ 4,603,214 $(1,808,560) $(6,906,683) $(4,074,104)
Net loss -- -- -- -- (575,343) (575,343)
Conversion of debt&payables 12,265,245 12,265 3,218,223 -- -- 3,230,488
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2000 21,746,440 $ 50,190 $ 7,821,437 $(1,808,560) $(7,482,026) $(1,418,959)
Net loss -- -- -- -- (323,161) (323,161)
Repayment of notes receivable,
Officers -- -- -- 126,186 -- 126,186
Conversion of debt&payables 1,949,223 1,769 563,964 -- -- 691,919
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 23,695,664 $ 51,959 $ 8,385,401 $(1,682,374) $(7,805,188) $(1,050,202)
Net loss -- -- -- -- (298,831) (298,831)
Repayment of notes receivable,
Officers -- -- -- 26,277 -- 26,277
Accrued Interest - notes
Receivable officers -- -- -- (244,558) -- (244,558)
Conversion of debt&payables 1,327,779 1,328 492,805 -- -- 494,133
Issuance of Series B Preferred
And 4,760,000 SAR's -- 865 2,512,835 -- -- 2,513,700
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 25,023,443 $ 54,152 $11,391,041 $(1,900,655) $(8,104,019) $(1,440,519)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
WORLDCAST INTERACTIVE, INC.
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30,
2000 1999
(Unaudited) (Unaudited)
------------ -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,197,336) $(1,572,516)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 7,889 --
Amortization of goodwill 39,337 --
Common stock issued for services 473,895 30,800
Common stock issued for interest 224,562 --
Cash balance of subsidiary on date of acquisition 117,699 --
Changes in assets and liabilities:
Decrease (increase) in operating assets:
Accounts receivable, net 155,899 (13,520)
Inventory 263,801 35,749
Prepaid expenses & other current assets (86,169) (223,224)
Warranty claims liability (81,833) --
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 13,317 470,510
----------- -----------
Total adjustments 1,128,397 300,315
----------- -----------
Net Cash (Used in) Operating Activities (68,939) (1,272,201)
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment (15,656) (26,419)
Research and development -- (19,550)
----------- -----------
Net Cash (Used in) Investing Activities (15,656) (45,969)
----------- -----------
</TABLE>
6
<PAGE>
WORLDCAST INTERACTIVE, INC.
Unaudited Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September 30,
2000 1999
(Unaudited) (Unaudited)
------------- ----------
<S> <C> <C>
Cash Flows from Financing Activities:
Repayment of notes payable $ (3,333) $ (61,501)
(Increase)/decrease in receivable-officers (92,095) (1,808,560)
Proceeds from sale of common stock -- 2,296,060
Proceeds from notes payable 130,000 --
Proceeds from short term loans 261,979 260,822
Proceeds from stockholder loan 29,000 --
Proceeds from Bridge Financing -- 588,000
---------- ----------
Net Cash Provided by Financing Activities 325,551 1,291,924
---------- ----------
Increase (decrease)in Cash and Cash Equivalents 240,956 (26,246)
Cash and Cash Equivalents - Beginning of Period 1,017 25,574
---------- ----------
Cash and Cash Equivalents - End of Period $ 241,973 $ (672)
========== ==========
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of common stock in connection with the
settlement of debt, accounts payable, accrued
expenses, accrued payroll, services, and interest
expense. $4,305,356
----------
Goodwill acquired in exchange for Series B Preferred
Stock and SAR's issued in connection with the
Acquisition of Cable Tech, Inc. $4,894,734
----------
</TABLE>
7
<PAGE>
WORLDCAST INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
On November 9, 1999, FutureTrak International, Inc. changed its name to
WorldCast Interactive, Inc.. WorldCast Interactive, Inc. and Subsidiaries (the
"Company") is in the business of providing information and communication
services and infrastructure to its customers using a variety of technologies.
The Company's previous market focus was on providing mobile satellite antennas
to the yachting industry allowing the yachts to receive satellite transmissions
while at sea. Beginning in fiscal 1999, the Company changed its focus to
providing wiring infrastructure, initially to multi-housing communities, which
enables the tenants to obtain Direct TV and high-speed internet access. As a
result of limited operating capital, the Company's operations were severely
limited to focusing on it's acquisition of Cable Tech, Inc. and it's wholly
owned subsidiary, Lyncs Technologies ,Inc .. As discussed in Note 2, the Company
completed the acquisition of Cable Tech on August 17,2000 and thus began to
target its business efforts to providing commercial customers' information and
communications services and infrastructure.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Cable Tech, Inc. All significant intercompany
accounts and transactions have been eliminated.
ESTIMATES
In preparing financial statements in accordance with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts and disclosures of assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenues as goods are shipped and services are delivered.
WORK IN PROCESS
Work in process consists of materials and supplies associated with installations
currently in progress. Any residual materials and supplies remaining from each
installation are considered to have no value.
8
<PAGE>
DEPRECIATION
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation for financial reporting purposes is computed by using the
straight-line method over the estimated useful life of the related assets, which
are as follows:
Years
Computer equipment 3-5
Office equipment 5
Furniture and fixtures 7
Cable Tech's property and equipment consists primarily of warehouse and office
equipment and automobiles. Depreciation is calculated based on estimated useful
lives, ranging from 4 to 7 years, using the straight-line and double declining
balance methods. Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvement.
For income tax purposes, accelerated methods of depreciation are generally used.
Deferred income taxes are provided for the difference between depreciation
expense for tax and financial reporting purposes.
INCOME TAXES
Income taxes are computed using an asset and liability method. Under an asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax basis of assets
and liabilities and are measured using currently enacted tax rates and laws. A
valuation allowance is provided when deferred tax assets are not expected to be
realized.
LOSS PER SHARE
Basic net loss per share equals net loss divided by the weighted average shares
outstanding during the year. Dilutive EPS has not been presented because common
stock equivalents would be anti-dilutive in 2000 and 1999.
INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The annual
financial statements of the Company as of December 31, 1999 should be read in
conjunction with these statements. The financial information included herein has
not been audited. However, management believes the accompanying unaudited
interim financial statements contain all adjustments, consisting of only normal
recurring adjustments necessary to present fairly the consolidated financial
position of WorldCast Interactive, Inc. as of September 30, 2000 and the results
of their operations for the nine months and three months ended September 30,
2000 and 1999 and cash flows for the nine months ended September 30, 2000 and
1999. The results of operations and cash flows for the period are not
necessarily indicative of the results of operations or cash flows for the year
ending December 31, 2000.
9
<PAGE>
GOODWILL
In connection with acquisition of Cable Tech described in Note 2, the Company
recognized $4,894,734 of goodwill. The Company is amortizing this asset over its
estimated useful life of fifteen years, using the straight-line method.
NOTE 2: ACQUISITION
On August 17,2000 the Company completed the execution of a amended merger
agreement resulting in the acquisition of all of the outstanding common stock
CableTech, Inc. and its wholly-owned subsidiary, Lyncs Technologies, Inc. in
exchange for 865,067 shares of the Company's Series B Convertible Preferred
Stock. The owners of Series B Convertible Shares are entitled to convert those
preferred shares to common shares on a semi-annual basis. Each preferred share
has voting rights equivalent to 4.6245 shares of WorldCast common stock and
shall be converted into 4.6245 shares of WorldCast common stock upon the
election of the preferred shareholder. Preferred shareholders are also provided
with liquidation preferences in the amount equal to $9.25 per share, adjusted to
reflect a price increase of 10% per annum, compounded daily, plus any and all
accrued and unpaid dividends. The preferred shareholders shall elect a majority
of WorldCast's board of directors if WorldCast fails to obtain the following
requirements by June 30, 2001:
1 obtaining of $5,000,000 of funding;
2 increase Cable Tech's "run rate", as defined, by $5,000,000 by
June 30, 2001;
3 obtain a listing of the Company's common stock on the OTC bulletin Board;
and
4 settle all Cable Tech debts and obligations secured by the former Cable
Tech's sole shareholder's personal guarantee or surety agreements existing
as of June 30, 2000.
If The Company fails to meet the aforementioned requirements by June 30, 2001,
the Series B Preferred shareholders will retain the right to elect a majority of
the board of directors until such requirements are satisfied.
In connection with the execution of the Merger agreement, the Company, Perrins
Management Corporation ("Consultant") and Robert H. Perrins, Jr. (former sole
shareholder of Cable Tech, Inc.), entered into a Consulting and Financial
Accommodation Agreements as described in Notes 8 and 9.
The Company valued the total consideration given, which includes the value of
the 3,760,000 SAR's described in Note 8, and the value of the 865,067 shares of
Series B Convertible Preferred Stock (as if converted to Common Stock) at
$2,153,700, and has accounted for the acquisition as a purchase.
10
<PAGE>
The following unaudited proforma summary presents the consolidated results of
operations of the Company as if acquisition had occurred at the beginning of the
1999 period.
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Net Sales $ 8,863,917 $ 4,636,192
Net Loss $ (1,154,329) $ (1,994,968)
Loss Per Share $ (0.06) $ (0.28)
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment of Cable Tech consists of the following:
Office equipment $ 127,832
Machinery 38,107
Automobiles and trucks 21,255
Leasehold improvements 13,489
---------
$ 200,683
Less: accumulated depreciation (178,835)
---------
$ 21,848
NOTE 4: SETTLEMENT OF DEBT
During the nine months ended September 30, 2000, the Company issued 15,602,236
shares of stock in settlement of debt and services amounting to $4,305,356
representing $165,313 of accounts payable, $2,008,959 of notes payable and
bridge financing, including $454,008 note payable to a stockholder in connection
with the purchase of Cable Tech, $237,000 of due to officers, $1,195,625 of
accrued payroll, $448,895 of services, and $249,562 of interest. As described in
Note 11, after September 30, 2000 the Company settled $463,849 of debt in
exchange for 2,899,056 shares of common stock.
NOTE 5: LINE OF CREDIT
The Company has renewed the $700,000 line of credit facility with a financial
institution that bears interest at prime plus 1.5%. The line is collateralized
by the Company's accounts receivable and property and equipment, and is
guaranteed by a stockholder. As of September 30, 2000, the Company had $-0-
available for additional borrowing.
11
<PAGE>
NOTE 6: NOTES PAYABLE
Notes payable consists of the following:
Note payable to a shareholder, payable on demand
bearing interest at 8%. Interest is payable with the
repayment of the principal. As of the date of the
filing the shareholder has not requested repayment
of the loan. $ 30,000
Note payable to a financial institution, with principal
due in monthly installments of $3,333, plus interest
bearing at prime plus 0.75%. The note matures in
November 2003. $127,000
Note payable to a former stockholder of Cable Tech, Inc.,
due in monthly installments of $5,232, including
interest bearing at 8% per annum, through January 2011. 435,000
--------
592,000
Less current portion (98,000)
--------
Long-term debt $494,000
========
The note payable to a financial institution is guaranteed by a stockholder. See
also Note 9.
The note payable to a former stockholder of Cable Tech was issued in February
1996 in connection with the Company repurchasing and retiring the former
stockholder's shares of Cable Tech common stock.
NOTE 7 - DEFERRED COMPENSATION AGREEMENT
The Company has a deferred compensation agreement with a former stockholder of
Cable Tech, Inc. Contractual payments under this obligation, subject to the
terms of the agreement, are due as follows:
Year ending December 31,
2001 $ 240,000
2002 240,000
2003 240,000
2004 240,000
2005 238,000
Thereafter 261,000
----------
$1,459,000
At September 30, 2000, the present value of the remaining contractual payments
was $1,027,000, which has been computed using a discount rate of 10%.
The Company is currently negotiating with the former stockholder of Cable Tech
to restructure the terms of the deferred compensation agreement.
12
<PAGE>
NOTE 8 - CONSULTING AGREEMENTS
WorldCast engaged the professional services of George Bassett and his firm,
Basscor as an independent financial consultant to help facilitate capital
formation. The terms of this consulting agreement are two six month periods
commencing May 15, 2000 with a $10,000 monthly fee convertible into common
shares of the Company at a 25% discount to the ten previous days ask-bid
average.
WorldCast rescinded the Equity Investment Line Agreement with EuroFund
Derivatives Limited of Edinburgh, UK on June 19, 2000 when funding did not
appear to be available per the terms and conditions of the agreement.
On July 1, 2000 in connection with the acquisition of Cable Tech, as described
in Note 2, the Company entered into a consulting agreement, as amended, with
Robert Perrins, former CEO and director of Cable Tech. The Agreement is
effective for a period of 2 years and provides for monthly payments of $20,833.
Under this Agreement, the Consultant shall provide consulting services as
described in the Agreement to WorldCast for a period of two years commencing
July 1, 2000. In consideration of the services to be provided and for entering
into the Merger Agreement with the Company, Mr. Perrins shall be granted and
issued a total of 7,760,000 units of the Company's share appreciation rights
("SAR") convertible after June 30, 2001 into 7,760,000 shares of the Company's
common stock at a conversion ratio of 1:1 or, at the sole election of Mr.
Perrins, each SAR unit may be converted into cash at the rate of $.40 per SAR
unit. Of the total 7,760,000 SAR's, 3,760,000 are directly related to the
acquisition of Cable Tech's common stock and have been accounted for in the
purchase at the present value of the cash redemption rate of the SAR's, or
$,1,353,600. The additional 4,000,000 SAR's are related to consulting services
to be provided by Mr. Perrins over the first year of the Agreement. However,
3,000,000 of these SAR'S are subject to a claw-back provision as set forth in
the Consulting Agreement. The claw-back provision provides that in the event
that the share price of the Company's common stock is $2.00 per share or more
for a fifteen day consecutive period within the quarter ending July 1, 2001,
then the SAR's subject to the Claw Back will be canceled. The SAR's subject to
the claw-back provisions are considered contingent consideration and the value
of any of these which remain outstanding after June 30, 2001 will be recorded as
a consulting expense. The Company has valued the 1,000,000 SAR's which are not
subject to the claw-back provision at their present value of .36 per SAR unit,
or $360,000, which is being amortized over one year as specified in the
Agreement. The 1,000,000 SAR's are not considered part of the purchase price for
the acquisition of Cable Tech.
On July 1, 2000, the Company entered into a consulting agreement with Ryan
Capital Management, Inc. for the purpose of investor relations and strategic
growth planning. The terms of this consulting agreement are two six month
periods commencing July 1, 2000 with a $10,000 monthly fee convertible into
common shares of the Company at a 25% discount to the ten previous days ask-bid
average. A "success fee" based on capital or financing arranged by the
consultants is to be computed as 6% on the first $4 million, 5% of the next $1
million and 4% on all remaining funds committed, and is payable within 5
business days. At the sole discretion of the consultant, this fee may be
converted to equity. In addition to the "success fee," the consultant is
entitled to warrants for 50,000 shares of common stock with piggyback
registration rights of the Company for each $1 million of capital or financing
arranged which the Company accepts. These warrants shall be priced at $.50 per
share for a period of 36 months commencing upon the execution of an agreement.
13
<PAGE>
NOTE 9 - FINANCIAL ACCOMODATION AGREEMENT
The Company has also agreed to pay an additional monthly fee of $20,833 in order
for Robert Perrins to maintain his personal guaranty under the loan agreement
between Cable Tech, Inc. and a financial institution. Upon repayment of the
loan, the Company will no longer pay this additional fee. On August 17, 2000 the
Company, Perrins Management Corporation, and Robert H. Perrins, Jr., entered
into a financial accommodation agreement pursuant to which the Company will
issue Mr. Perrins 1,187,104 shares of the Company's common stock, in lieu of and
in full satisfaction of a repayment of a loan payable by Cable Tech, Inc to Mr.
Perrins in the amount of $454,008. The note payable to a stockholder was issued
in December 1999 in order to provide the Company with working capital and to pay
off other debt obligations of the Company. The note has been converted into
equity in connection with the acquisition of Cable Tech as described in Note 2.
NOTE 10 - LITIGATION
During the nine months ended September 30, 2000 the Company continued to manage
the Space Scanner warranty claims as it further negotiated with the
manufacturer, galaxis GmbH of Germany. The Company had agreed per a non-binding
memorandum of understanding, to provide assistance on accounting reconciliation
to galaxis in managing the Space Scanner warranty claims prior to executing a
binding settlement.
Galaxis GmbH, the manufacturer of the Space Scanner proposed a settlement offer
with the owners of defective space scanners. The galaxis GmbH settlement offer
proposes three options;(i) to refund to the owner $1,000 per space scanner;(ii)
upgrade the owner to an advance in motion system; or (iii) upgrade the owner to
a more advanced in motion system. All three options requires the owners of space
scanners to execute a complete release of any further claims and to return the
space scanner to a designated warehouse. Galaxis GmbH in preparing to receive
backspace scanners as a result of this settlement proposal has executed an
agreement with a public storage facility to manage the receipt of the space
scanners and to store them. Galaxis GmbH escrowed with the Company's California
legal counsel sufficient funds to pay the single largest warranty claim.
The Company has been informed of a lawsuit filed by Lockheed Martin. The charges
alleged in the lawsuit are believed to be without merit and will be vigorously
defended.
NOTE 11 - SUBSEQUENT EVENT
On October 27, 2000, the Company issued 2,899,056 shares of common stock in
settlement of debt and services amounting to $463,849, representing $319,353 of
accrued payroll and $144,496 of other services.
14
<PAGE>
WORLDCAST INTERACTIVE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Amounts presented herein have generally been rounded in the nearest thousand
dollars and the related dollar and percentage fluctuations are calculated on
such rounding.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain statements which are forwarded-looking and the
accuracy of which are based upon certain uncertainties in the Company's future
operations and results. For a discussion of important factors that could cause
the actual results to differ materially from those contained in such
forward-looking statements, see "Forward-Looking Statements" below.
During the nine months ended September 30, 2000 the Company continued to manage
and settle some of the space scanner warranty claims. Under a nonbinding
agreement between the Company and the space scanner manufacturer, Galaxis GmbH
of Germany, claimants are being offered approximately $1,100 in cash or $1,100
towards the purchase of a replacement space scanner. The parties agreed that
Galaxis would be responsible for approximately 75% of the warranty cost and the
Company would absorb the remaining 25%. In addition, Galaxis also recognized
that due to billing and inventory quantity errors that it owes the Company
approximately $300,000. Galaxis is currently funding all warranty claim payments
and is reducing the amount due the Company for its share of each warranty claim
when settled. Because the above transactions are occurring under a non binding
agreement the Company has only reduced the warranty claim liability for the
amount of settled claims and has not recognized any amounts due from Galaxis.
The Company anticipates that all warranty claims will be satisfied during the
first quarter of 2001 at which time it will enter into a final binding agreement
with Galaxis.
CHANGES IN OPERATING ACTIVITIES
As discussed in Note 2 to the financial statements, on August 17, 2000, the
Company completed the acquisition of Cable Tech, Inc. and its wholly owned
subsidiary, Lyncs Technologies, Inc .. Cable Tech is a LUCENT Business Partner
and provides telephony and data networking infrastructure to customers in San
Jose, California and the surrounding 50 miles, better known as Silicon Valley.
The operations of Cable Tech and its wholly owned subsidiary are included in the
Company's consolidated financial statements from the date of acquisition.
During the current fiscal year until the acquisition of Cable Tech the Company's
activities were limited to continuing to manage the space scanner warranty
claims and completing the acquisition of Cable Tech. Consequently, during the
nine and three months ended September 30, 2000 the Company's revenues and cost
of sales result solely from the activities of Cable Tech. The selling, general
and administrative expenses during the same period reflect Cable Tech's expenses
from the date of acquisition and the WorldCast's for each of the periods
presented. During the nine months ended September 30, 1999 the Company derived
substantially all of its income from the sales, installation and service of the
Galaxis space scanner. It also attempted to expand its revenue through the
sales, installation, and service using certain equipment and content such as
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Direct TV, real time stock quotes, and real time weather information provided by
Digital Transmission Network to residential apartments, gated properties,
condominiums and newly developed housing projects all included in the Multi
Housing Unit (MHU) market. During the third quarter of 1999, due to significant
customer complaints, the Company stopped accepting space scanner orders, and
focused its efforts on resolving customer complaints and replacing defective
products. In addition, because of the bankruptcy filing of a significant MHU
industry player SkyView, Inc., investor interest diminished and the Company was
unable to raise the capital needed to fund the Company's efforts in the MHU
market. As a result of the changes in the operations previously described, the
following year to year comparisons reflect the different activities of the
Company during the periods presented.
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE AND THREE MONTHS
ENDED SEPTEMBER 30, 1999
SALES
Gross revenues increased from $152,000 and $51,000 for the nine and three months
ended September 30, 1999, respectively, to $1,680,000 for both the nine and
three months ended September 30, 2000. On August 17, 2000 the Company completed
the acquisition of Cable Tech, Inc. and included its sales in the Company's
consolidated financial statements from the date of acquisition. Cable Tech's
sales are derived from the design, sale and installation of data and
telecommunication cable and equipment. As discussed above, prior to the
acquisition of Cable Tech the Company did not generate any other revenues during
the current fiscal year. During the nine and three month periods ended September
30, 1999 the Company's sales were derived from the sales, installation and
service of the Galaxis space scanner. As discussed above the Company ceased
selling the space scanners in the third quarter of 1999 due to customer
complaints regarding performance problems.
COST OF GOODS SOLD
Cost of goods sold increased from $256,000 and $74,000 for the nine and three
months ended September 30, 1999, respectively, to $1,402,000 for both the nine
and three months ended September 30, 2000. During the 2000 periods the cost of
goods sold includes the labor and material costs associated with the contractual
revenue recognized since the date of acquisition of Cable Tech. During the 1999
periods cost of goods sold exceeded revenues because the Company incurred costs
of replacing malfunctioning space scanners sold in prior years as well as
inventory write-down costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the nine and three month
periods ended September 30, 2000 decreased by $33,000 and increased by $9,000,
respectively, from $1,447,000 and $741,000, respectively, for the nine and three
months ended September 30, 1999, a decrease of 2% and an increase of 1%,
respectively, for each period. For all of 2000, until the Company acquired Cable
Tech, it only employed its executive staff. The executive compensation, which
amounted to $313,000 and $125,000 during the nine and three months ended
September 30, 2000, was paid for through the issuance of 3,166,067 shares of the
Company's common stock, 1,735,067 of which were issued subsequent to September
30, 2000 (see Note 12). Cable Tech's portion of the selling, general and
administrative salaries amounted to $369,000 during the nine month and three
month periods presented, or 22% of revenues. During the 1999 periods, the
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selling, general and administrative expenses were incurred in connection with
the space scanner and MHU businesses. During the third quarter of 1999, because
of the problems noted above, substantial reductions in workforce commenced and
expenses were reduced.
INTEREST EXPENSE
Interest expense increased by $285,000 to $307,000 in the nine months ending
September 30, 2000 from $21,990 in September 30, 1999. Interest expense
increased by $53071 to $72,241 in the three months ending September 30, 2000
from $18,170 in September 30, 1999 These increases are due primarily to the
increase in the average outstanding balance of debt during the related periods
and the $20,833 monthly "Guarantee Fee" described in Note 9 to the Financial
Statements which occurred as a result of the acquisition of Cable Tech on August
17,2000.
LIQUIDITY AND CAPITAL RESOURCES
Until the acquisition of Cable Tech on August 17, 2000 and due to the severe
capital restraints during 2000 the Company only employed three executive
personnel. On July 18, 2000 the chief executive officer Ahmad Moradi resigned
and the executive team was reduced to two. Mr. Robert Kelner has replaced Mr.
Moradi as interim chief executive officer.
The Company has experienced severe negative cash flows and has met its cash
requirements by issuing its securities during the period prior to the
acquisition of Cable Tech. Additional funds were generated by borrowings of
approximately $420,000. The capital was obtained from private investors
($261,000), a financial institution ($130,000), and a stockholder ($29,000). On
March 15, 2000, a portion of these liabilities were converted at $.1875 per
share of the Company's common stock in reliance of the exemption from
registration provided by Section 4(2) of the Securities Act. The conversion
equated to 661,333 shares of common stock for a $154,000 loan and 154,667 shares
of common stock for the $29,000.
Through September 30, 2000 the Company completed several agreements with debt
holders, executive management, former employees and a former stockholder of
Cable Tech that converted liabilities totaling $4,305,000 into 15,602,236 shares
of the Company's stock at an average price of $.28 per share. In addition,
exclusive of certain capitalized expenses, the acquisition of Cable Tech as
described in Note 2 and 9 of the Financial Statements was accomplished through
the issuance of Stock Appreciation Rights and Series B Preferred Stock. These
transactions were made in reliance of the exemption from registration provided
by Section 4(2) of the Securities Act.
William Tessaro, the Company's Chief Technical Officer loaned the Company an
aggregate of $171,204 in 1998. Mr. Tessaro has converted the outstanding amount
of the loan including interest ($208,000) into 1,264,000 shares of the Company's
common stock. This conversion was made in reliance of the exemption provided by
Section 4(2) of the Securities Act.
While the Company believes that its operating entity (Cable Tech) has sufficient
cash flow to meet its near term operating requirements, there is insufficient
cash flow to support its parent's operating expenses, to pay the amounts due to
the former shareholder of Cable Tech with respect to the Consulting Agreement
(Note 8) and Financial Accommodation Agreement (Note 9), to pay the current
portion of its Long Term Debt (Note 6) and to pay amounts due under the Deferred
Compensation Agreement (Note 7). The Company is renegotiating the terms of these
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agreements and to date no agreements have been reached. In order for the Company
to have sufficient cash flow for the next twelve months, in addition to
renegotiating certain debt, the Company also seeks to raise additional capital
through the sale of securities. There can be no assurance that the Company will
successfully renegotiate the aforementioned debt or raise additional capital.
The Company as of September 30, 2000 has negative working capital of $2,293,000.
This has increased from negative working capital of $1,446,000 as of June 30,
2000, and is a direct result of the acquisition of Cable Tech, Inc.
FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operation contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which represent the Company's expectations or beliefs concerning future
events, including without limitation the following: changes in the Company's
sales, costs, expenses and other financial information; changes or adjustments
in the Company's downsizing plan, including without limitation the reduction of
the Company's workforce and the potential growth opportunities through sale,
installation and service of other third party products; the Company's ability to
secure additional line of credits and other sources of financing, as well as
other sources, if necessary for the Company to do so; and the sufficiency of the
Company's cash provided by some of its stockholders to move ahead the Company
toward realization of revenue provided by operation, investing and financing
activities for the Company's future liquidity and capital resource needs.
The Company cautions that these statements are further qualified by important
factors that could cause actual to differ materially from those contained in the
forward-looking statements, including without limitation the following; general
economic conditions; specific economic conditions relating to convergence
technologies, the demand for Company's products and services; the size and
timing of the future sales and new contracts; specific features requests by
customers; production delays or manufacturing inefficiencies; management
decisions to commence or discontinue service or product lines; the Company's
ability to introduce or sell new products on a cost-effective and timely basis;
the amount of timing of research and development expenditures when and where
applicable; the maintenance of present and the availability of future strategic
alliances and joint marketing or service agreements; the introduction of new
products and product enhancements by the Company or its competitors; the
budgeting cycle of customers; the adaptation of technologies by the customers;
changes in the proportion of the revenue attributable to new and existing
products and services and maintenance and support services; changes in the level
of operating expenses; and the present and future level of competition in the
industry. As a result of these and other important factors, the results actually
achieved may differ materially from expected results included in these
statements.
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Part II: Other Information
ITEM 1: Legal Proceedings
WorldCast and certain of its officers were named defendants in a warranty
claim action brought by Charter Memories, Inc. Per the Company's legal counsel's
opinion, it appears that the Company's warranty obligations to Charter Memories
is limited to its contractual obligation of $43,000 for the value of the space
scanners. Charter Memories had added to their litigation lost profit and other
related costs whereby their claim for damages approximated $98,000. Galaxis GmbH
has placed in escrow with the Company's legal counsel US$50,000 to satisfy this
claim.
ITEM 2: Changes in Securities and Use of Proceeds
None
ITEM 3: Defaults upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Securities Holders
None
ITEM 5: Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report of form 8K on September 6,2000 in
connection with its acquisition of Cable Tech, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned as a duly authorized officer as the chief
financial officer of the Registrant as of December 15,2000.
WORDLCAST INTERACTIVE, INC.
By: /s/ Robert S. Kelner
-------------------------------
Robert S. Kelner,
President, Chief Operating Officer,
Interim Chief Financial Officer
(authorized Officer and
Chief Accounting Officer)
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