SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-SB
CURRENT REPORT
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934.
WORLDCAST INTERACTIVE, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 000-28743 65-0639498
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(State or Other (Commission File (IRS Employer Identification No.)
Jurisdiction of Number)
Incorporation)
20283 State Road 7, Suite 300, Boca Raton, Florida 33498
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(Address of Principal Executive Offices) (Zip Code)
(561) 864-2316
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: None
Title of Each Class Name of Each Exchange on Which
To be registered Each class is to be registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of Class)
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Page 1 of 29 pages
Exhibit Index begins on Page III-1
Page No.
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PART 1
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Item 1. Description of Business.............................................................. 3
Item 2. Management's Discussion and Analysis ................................................ 12
Item 3. Description of Property.............................................................. 16
Item 4. Security Ownership of Certain Beneficial
Owners and Management................................................................ 17
Item 5. Directors, Executive Officers and Control Persons.................................... 17
Item 6. Executive Compensation............................................................... 18
Item 7. Certain Relationships and Related Transactions....................................... 20
Item 8. Description of Securities............................................................ 21
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity And Other Shareholder Matters.......................................... 23
Item 2. Legal Proceedings.................................................................... 24
Item 3. Changes in and Disagreements with Accountants........................................ 24
Item 4. Recent Sales of Unregistered Securities.............................................. 24
Item 5. Indemnification of Directors and Officers............................................ 27
PART FS
Financial Statements................................................................. 29
Table of Contents.................................................................... 29
PART III
Item 1. Exhibit Index........................................................................ III-1
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This discussion in this report regarding WorldCast Interactive, Inc.
and its business and operations contains "forward-looking statements." These
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking words such as "may,"
expect," anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. You are cautioned that all
forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward looking statements. We
undertake no obligation to update or revise forward-looking statements, thus you
should not assume that silence over time means that actual events are bearing
out as estimated in such forward looking statements.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART 1
Item 1. Description of Business
WorldCast Interactive, Inc. provides satellite television, interactive
content and other information services. In this report, we refer to WorldCast
Interactive, Inc. as "WorldCast," "we" or "us." We provide our services to the
multiple-housing unit market, which includes apartment communities, condominium
communities, college dormitories, hospitals, hotels, mobile home parks and
private residential subdivisions. Our services include the installation of our
signal distribution systems to deliver television and information services
(including DIRECTV(TM) television services and high-speed Internet access) to
subscribers. In November 1999, we amended our articles of incorporation to
change our name from FutureTrak International, Inc. to our present name.
Historically, our business focused upon provision of entertainment and
information services, including weather and stock reports, to customers on
yachts in the United States. This line of business has been detrimentally
affected by problems associated with the quality of the receiver and antenna
equipment supplied to us. We are currently evaluating our strategy with regard
to this line of business.
Our strategy is to deliver quality entertainment and information
through various technologies, including satellite and terrestrial means of
communication, to emerging niche markets. We expect to continue our focus on the
multiple housing unit market while pursuing opportunities in other markets. From
time to time we engage in merger, acquisition and related discussions with
entities that provide technologies or services complementary to ours. Although
we are presently engaged in these discussions, we are not a party to any signed
agreement.
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Currently, we are actively seeking to enter into a relationship with
Cisco Systems, Inc. to serve as a Cisco Channel Partner. Under this relationship
we would provide Cisco System's services and products to design, install and
maintain telephony and data networks of communications.
We were organized as a Florida corporation in January 1996. In January
1999, we formed our wholly-owned subsidiary, FutureTrak, Inc., to provide, on a
subscription basis, entertainment, information and communication services to
residents of multiple housing units. We operate our marine business through STI
Group, Inc., another wholly-owned subsidiary, formed in January 1999. We intend
to conduct research and development activities through our third wholly-owned
subsidiary, Maxwell Technologies.
The Multiple Housing Unit Market Business
Under an agreement with Golden Sky Systems, Inc., WorldCast is
authorized to market and provide the programming services of DIRECTV to multiple
housing units for which it has obtained the right to install its signal
distribution system. WorldCast, as a DIRECTV system Operator, receives a
one-time $100.00 activation fee with a free IRD and a monthly residual of 19% of
subscribers' programming from DIRECTV. IRD, which stands for Integrated
Receiving Device, is the set-top-box that is generally installed on the top of
the television which allows the user to receive cable or satellite television
channels. In addition, WorldCast charges a $10.00 monthly access fee to all
tenant subscribers. DIRECTV is a leading provider of multi-channel direct
broadcast satellite television services. Golden Sky is one of four master system
operators DIRECTV has retained to sell its services to multiple housing units.
The initial term of this agreement expires in July 2004.
DIRECTV currently offers in excess of 220 channels of video and audio
programming, including:
o video and audio services available for purchase in tiers for a
monthly subscription fee;
o premium services available a la carte or in tiers for a
monthly subscription fee;
o sports programming (major professional league sports package,
including the exclusive NFL Sunday Ticket, regional sports
networks and seasonal college sports packages) available for a
yearly, seasonal or monthly subscription fee; and
o movies from major Hollywood studios and special events
available for purchase on a pay-per-view basis.
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WorldCast proposes to deliver off-air or local television programing,
broadcast programming to multiple housing unit subscribers either free-of-charge
or for a nominal fee through DIRECTV.
WorldCast is also an authorized reseller of financial and weather
information services provided by Data Transmission Network Corporation, and
proposes to provide an array of other programming and services to residents of
multiple housing units across the United States. WorldCast believes that
multiple housing units provide a highly concentrated base of consumers to whom
communications companies can provide cost-effective access due to the large
volume of consumers in a compact area.
Industry analysts have reported that there are almost 20 million
multiple housing units in the United States. WorldCast has identified the
following regions of the United States as potential markets, based on population
growth trends, expressed interest by multiple housing unit owners and other
factors:
o The central region, including Missouri, Kansas and Colorado;
o The southeast region, including Georgia and Florida;
o The southwest region, including Texas, New Mexico and Arizona;
and
o The west region, including California, Washington.
We intend to focus future marketing efforts on direct-marketing to the
largest property management companies in the United States, including real
estate investment trusts. We intend to enter into exclusive agreements with the
owners of multiple housing units in the target regions listed above. Because
these property owners or managers often own or manage several multiple housing
unit properties, we believe that success at one multiple housing unit property
may result in subscriber growth from other multiple housing units under common
control.
We selectively target multiple housing unit properties to provide
television and high-speed Internet services using a model that evaluates:
o the location of the multiple housing unit;
o multiple housing unit property values;
o average annual income per resident;
o the median age of residents of the multiple housing unit; and
o the average monthly rent.
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Our model is designed to identify desirable properties and to exclude
substandard properties from the target market because of increased risk of
equipment loss (i.e., damage to or theft of set top boxes, cabling, or other
equipment comprising our signal distribution system) and the likelihood of
reduced return-on-investment.
The Marine Business and Market
Commencing in 1996, we concentrated our business activities on the
provision of satellite television and other communications services to the
marine market based on the belief that this market had growth potential given
the size of the boating market in the United States.
We have been significantly hampered in our ability to service the
marine market as a result of defects in the space scanner receiver and antenna
we sell to customers. Because of these defects, we suspended marketing efforts
to the marine market in April 1999. We intend not to resume marketing efforts
regarding the space scanner receiver and antenna until we have reached
satisfactory resolution of disputes with galaxis GmbH and its affiliates, the
supplier of the space scanner receiver and antenna equipment, concerning the
equipment and the parties' respective obligations.
PRODUCTS AND SERVICES
Signal Distribution Systems
In connection with its multiple housing unit operations, WorldCast
proposes to implement video distribution designs and system architectures, which
will vary based upon the unique layout and service requirements of each multiple
housing unit community. At this time, WorldCast has not installed any units. The
type of equipment to be used and the method of signal distribution will be based
upon many factors, including:
o the number of set-top boxes required per unit;
o the number of units in a building;
o the length and condition of the drop wires;
o the location of an external power supply;
o the location of a suitable dish mounting surface;
o the location and exposure of the building; and
o the demographics of the community.
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Generally, each signal distribution system will be comprised of:
o a satellite dish and other antenna capable of receiving direct
broadcast satellite programming and off-air television
broadcast signals; and
o wiring from the dish and antenna to each unit in the multiple
housing unit, through which video programming and other
information services can be delivered to subscribers. This
wiring is potentially suitable for the provision of
high-speed, interactive, Internet access.
WorldCast offers a variety of higher speed Internet access technologies
dependent upon factors such as subscriber sign-up rates and the physical
location of subscribers within a property. As our subscriber rates for the
property increase, the property can support wireless platforms including Lucent
Technologies WaveLAN and local area technologies utilizing network wiring and
protocols such as Ethernet and Asynchronous Transfer Mode.
Preliminary estimates by WorldCast of the average cost of constructing
each signal distribution system are between $400 and $750 per unit. This
estimated cost could increase if a more sophisticated signal distribution system
is needed in order to connect multiple housing unit subscribers with networks
maintained outside the multiple housing unit by Internet service providers.
Marine Receiver Equipment
WorldCast intends to offer marine customers a comprehensive satellite
communications solution, including the components, antenna and software needed
to receive and process audio and video programming.
WorldCast is reevaluating whether to continue to base its marine
activities on the Space Scanner satellite receiver and antenna equipment. Unless
it receives satisfactory assurances that defects in this equipment will be
rectified shortly, WorldCast may enter into marketing and distribution
arrangements with the suppliers of other suitable receiver equipment.
In 1998, WorldCast entered into an agreement with Data Transmission
Network pursuant to which it has the right to offer DTN's real-time stock and
other financial information, together with comprehensive weather services, to
marine subscribers. The agreement is for one year and renews automatically by
the parties.
Revenues
WorldCast anticipates earning revenues in two ways. The first is
through ongoing revenue sharing and commission incentives received from DIRECTV
and other
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suppliers of content or services to WorldCast. The second is through fees
received from subscribers for the right to receive entertainment and information
services through use of signal distribution systems installed by WorldCast in
multiple housing units and receiver equipment installed on boats.
WorldCast may agree to share some of the revenues it earns from the
multiple housing unit market with the owners of multiple housing units in which
it installs and maintains signal distribution systems.
Key Agreements
WorldCast has entered to the following key agreements in connection
with its marine business and its proposed multiple housing unit operations.
Multiple Housing Unit System Operator Agreement Between Golden Sky and
WorldCast.
In an agreement dated July 9, 1999, Golden Sky, a master system
operator to the multiple housing unit market for DIRECTV programming, granted to
WorldCast the right to market and sell DIRECTV programming in multiple housing
unit properties for which WorldCast obtained a valid right of entry under this
agreement. However, at this time, due to WorldCast's change in business
strategy, WorldCast is not actively pursuing this relationship.
Master Distribution Agreement Among WorldCast and Galaxis GmbH
In June 1997, galaxis GmbH and WorldCast entered into a master
distribution agreement whereby galaxis GmbH granted WorldCast the exclusive
right to sell, market and distribute Space Scanners to the marine market in
North America, the Bahamas and the Caribbean. The term of the agreement was for
a initial period of one year, to be renewed automatically, subject to
termination by either party upon at least 60 days' notice before the expiration
date. In addition, WorldCast has the right to terminate the agreement at any
time by three months' written notice to galaxis GmbH. galaxis GmbH must make
Space Scanners available to WorldCast for a price equal to the lowest price
charged to any other customer. All customers to whom WorldCast sells the Space
Scanners are given a free replacement warranty from WorldCast, backed by galaxis
GmbH for 12 months. In addition, the agreement provides that galaxis GmbH shall
indemnify WorldCast against any product liability actions involving products
manufactured by or on behalf of galaxis GmbH.
WorldCast and galaxis GmbH are currently in negotiations concerning how
to resolve difficulties with the quality and supply of space scanner receiver
and antenna equipment. It is possible that these discussions will result in the
termination of the master distribution agreement and/or litigation.
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Sales Representative Agreement Between WorldCast and Gulfstream
In an agreement dated February 8, 1999, WorldCast appointed Gulfstream
its exclusive sales agent for all products sold by WorldCast to the marine
industry, including space scanner receiver and antenna equipment. The term of
the agreement expired one year from the date of its execution. The contract is
renewable by agreement for additional terms of one year each. Under this
agreement, Gulfstream is entitled to a commission of 10% of the net sales price
of space scanner products sold to marine industry customers in North America.
WorldCast is obligated to indemnify Gulfstream against claims or loss it incurs
in connection with the manufacture, sale or operation of WorldCast products.
Because of difficulties with the supply and quality of space scanner
receiver and antenna technology, Gulfstream ceased to perform activities with
respect to the sale of WorldCast products in April 1999. There can be no
assurance that these difficulties will be resolved or that WorldCast will resume
selling products to the marine market at all.
Asset Purchase
On January 5, 1999, WorldCast and Satellite Technology, Inc., entered
into an asset purchase agreement whereby WorldCast purchased certain assets used
in connection with distribution of the Space Scanner. The purchase price paid by
WorldCast consisted of 200,000 shares of common stock and a $160,347 promissory
note, described below.
Terminated Merger with Celerity Systems, Inc.
On December 7, 1999, WorldCast, Celerity Systems, Inc. and FutureTrak
Inc. terminated a merger agreement dated August 10, 1999. The merger was
terminated primarily because efforts to obtain necessary funding for the planned
activities of the parties had not proven successful.
Loans
On January 5, 1999, WorldCast issued a $160,347 promissory note to
Satellite Technology, Inc. as a part of the purchase price of an asset purchase
of that company by WorldCast of the same date. The note bears an interest rate
of the prime rate plus two percent per annum and is payable in equal monthly
installments of $20,046.75, and is due January 5, 2000. Subsequent to January 5,
the Company converted the note to 855,184 shares of common stock.
In 1998 WorldCast borrowed $395,000 from First Capital pursuant to a
secured demand promissory note. On March 1, 1999, First Capital Services
restructured the loan to WorldCast in the form of an unsecured negotiable
promissory note. The note's
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effective date was January 1, 1998, beared an interest rate of 1.00% per month
simple interest, and was payable in monthly installments of $10,401.86. Payments
commenced February 1, 1999 and continued until January 1, 2003, at which time
all unpaid principal and all accrued and unpaid interest became due. The Company
made two payments on the note. The entire note, including interest, was
subsequently converted into 1,986,318 shares of common stock in March 2000.
On March 1, 1999, First Consolidated Services restructured a $163,000
loan to WorldCast in the form of an unsecured negotiable promissory note. The
note's effective date was January 1, 1998, bears an interest rate of 1.00% per
month simple interest, and was payable in monthly installments of $4,292.42.
These payments commenced February 1, 1999 and continued until January 1, 2003,
at which time all unpaid principal and all accrued and unpaid interest became
due. The note was subsequently converted into 727,416 shares of common stock in
March 2000.
The notes discussed above were converted in reliance of the exemption
from registration provided by Section 4(2) of the Securities Act.
COMPETITION
The Multiple Housing Unit Business
WorldCast competes in the multiple housing unit market with a broad
range of communications and entertainment service providers, including cable
operators, other satellite service providers, wireless cable operators,
telephone companies, television networks and home video product companies. Many
of WorldCast's competitors will have greater financial and marketing resources
than WorldCast. WorldCast believes that quality and variety of programming,
signal quality and service and cost will be the key points of competition. No
units have been installed by WorldCast at this date.
WorldCast believes it will obtain a competitive advantage over other
entertainment and information service providers seeking to service the multiple
housing unit market if it succeeds in entering into exclusive agreements with
the owners of a significant number of multiple housing units in the various
regions in which it is focusing its marketing efforts. Except as otherwise
required by law, these agreements will result in WorldCast's becoming the sole
provider of entertainment and information services to residents of those
multiple housing units.
Cable Television Providers
Many cable television providers are in the process of upgrading their
systems, and other cable operators have announced their intentions to make
significant upgrades. Many proposed upgrades, such as conversion to digital
format, fiber optic cabling, advanced compression technology and other
technological improvements,
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when fully completed, will permit cable companies to deliver a better quality
signal and to increase channel capacity, which will increase programming
alternatives.
WorldCast believes that these upgrades will increase the level of
competition posed by cable systems that desire to continue servicing the
multiple housing unit market, but will require substantial investments of
capital and time. In the meantime, WorldCast believes it will be able to provide
a competitive entertainment and information service allowing choice of
programming and other services, and competitive signal quality.
Other Digital Broadcast Services
In the satellite TV business EchoStar is a competitor of DIRECTV in the
United States. EchoStar has developed its own network of multiple housing unit
distributors for its product. WorldCast expects to compete with distributors of
both DIRECTV and EchoStar for the right to supply satellite television and other
services exclusively to multiple housing unit subscribers. WorldCast believes
that DIRECTV's brand name and its significantly larger distribution networks
will assist WorldCast in competing with EchoStar distributors.
Larger satellite dish manufacturers, known as C-band/TV providers,
serve subscribers who live in markets not served by cable television. C-band
equipment, including the six-to eight-foot dish necessary to receive the low
power signal, currently costs approximately $2,000 and is distributed by local
satellite dealers. WorldCast believes that direct broadcast services have
significant advantages over lower power C-band service in equipment cost, dish
size and range of programming packages.
The Marine Business
The market for satellite tracking systems and antennas is dominated by
companies including Datron, KVH, and SeaTel. If WorldCast continues to service
the marine satellite markets it will attempt to obtain a competitive advantage
by utilizing currently available technology which it believes more fully
addresses customers demands than addressed by its competitors.
Employees
WorldCast currently has five full-time employees.
Insurance
WorldCast carries general liability insurance and director's and
officer's other insurance it believes necessary for its business operations.
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Trademarks
WorldCast owns the registered trademark "FutureTrak". It has registered
the domain name "FutureTrak.com" and "1WorldCast.com."
Item 2. Management's Discussion and Analysis
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.
General
The company derives its revenue primarily from sales, installation and
service of its galaxis-developed satellite positioner technology known as the
space scanner receiver and antenna equipment. In 1999, the Company attempted to
add additional sources of revenue through sales, installation and services using
certain equipment and content such as DIRECTV, real time stock quotes and real
time weather information provided by Digital Transmission Network (DTN) to
residential apartments, gated properties, condominiums, and newly developed
housing projects, all included in the Multi Housing Unit (MHU) market. In 1999,
the Company's primary source of income has been through the sale of its space
scanner receiver and antenna equipment. As described below the Company
experienced significant performance problems with its space scanner receiver and
antenna product and capital formation problems for its new line of business
resulting in net losses which amounted to $447,000, the closing of its new line
of business and severe reduction in the operations of the Company's space
scanner receiver and antenna equipment business.
During the second and third quarters of 1999, the Company received
significant customer complaints regarding space scanner receiver and antenna
equipment malfunctions. Consequentially, the Company had to stop accepting new
orders and to re-allocate resources to managing these customer complaints,
replacing space scanner receiver and antenna equipment, arranging for the return
of product, and handling refund requests. Certain customer complaints resulted
in lawsuits that in aggregate total approximately $125,000. The Company and
galaxis have since signed a non- binding memorandum of understanding, which
should ultimately result in a mutually acceptable settlement agreement. At this
stage, however, the product viability remains
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uncertain, there is no assurance that galaxis and the Company would conclude a
favorable settlement agreement.
Additionally, the Company could not complete the started multi housing
unit installations due to the lack of required capital. In the third quarter
investors' interest in funding the Company's MHU efforts diminished when a
significant industry member, SkyView, filed for bankruptcy. Thus on September
13,1999; the Company rescinded its offer to acquire Golden Sky Systems, a
DIRECTV, Master System Operator and shortly thereafter, the Company suspended
operations of FutureTrak, Inc; the MHU business segment.
Lack of Revenue
From the second quarter of 1999, with the suspension of any significant
sales the Company found itself with limited financial resources and limited
near-term revenue enhancement opportunities. While revenues decreased, the
Company incurred increasing costs for space scanner receiver and antenna
equipment support; claims and maintenance thus further impacting the Company's
financial position.
Results of Operations
Comparison of the Year Ended December 31, 1999 to the Year Ended
December 31,1998
Sales. Total sales for 1999 were approximately $132,000 as compared
with 1998 total sales, which were approximately $442,000. In January,
in order to improve sales the Company hired the President of Satellite
Technologies, Inc. and acquired certain assets of his company. The
Company engaged Gulfstream Marine Products, a marine electronics
specialty sales force to promote the space scanner receiver and antenna
equipment to the National Marine Manufacturers Association (NMMA) and
their 1,600-dealer network. These sales and marketing initiatives
resulted in the Company receiving orders, which could have equaled or
exceeded 1998 sales. However, the Company was not able to receive
sufficient quantities of working space scanner receiver and antenna
equipment, which met the agreed-to quality levels from galaxis GmbH.
Galaxis was in the process of modifying the product to remedy its
malfunctions when it instructed its licensed manufacturer,
Lockheed-Martin, to cease production, thus effectively stranding the
Company with customers' orders it could not fulfill. The Company's
entry into the Multi Housing Unit market was curtailed in the third
quarter when SkyView, the largest of the four Master System Operators
for DIRECTV filed Chapter Eleven; thus, significantly diminishing
investors' interest in funding a similar business model in the same
industry segment.
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In fiscal 2000, the Company expects overall sales growth from providing
convergence integration solutions to small to medium sized businesses
in the South Florida market. To accomplish this, the Company intends to
become a Cisco Channel Partner. A Cisco Channel Partner is a business
which provides the necessary services and products to design, install
and maintain telephony and data networks of communications for
businesses. Partners must demonstrate their ability to perform these
responsibilities. Cisco Channel Partner is a Cisco Systems, Inc.
reseller business program. Management believes it possesses the
necessary skills and experience to serve as a Cisco Channel Partner.
Financially, the Company will be required to purchase products through
Cisco Systems' distributors. Management believes revenues derived as a
Cisco Channel Partner will cover the Company's operational expenses.
The Company will refocus its sales efforts in providing communication
and data network solutions using Cisco Systems' equipment and other
appropriate technology. Where appropriate, the Company will be
designing, installing and maintaining local area networks (LAN),
voice/telephony switches, active and passive data network components
and software to provide integrated, multi-service communications over a
business's existing data network system.
Cost of Goods Sold. Cost of goods sold increased approximately $204,858
from $463,000 in fiscal year 1998 to $667,858 in fiscal year 1999. The
significant changes in the dollar amount of the cost of goods sold are
related to the ceasing of space scanner receiver and antenna equipment
deliveries and sales, resulting in the write down of related inventory.
These write downs totaled approximately $145,275 plus the $240,000
value for the assets acquired from Satellites Technologies Inc.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1999 increased approximately $1,400,000, or
77.8% to $3.2 million from $1.8 million in 1998. Executive compensation
per the employment contracts were accrued in 1999 as in 1998. The total
accrual in 1999 was approximately $814,000 as compared to $261,000 in
1998. The Executives agreed to convert all accrued payroll to equity in
2000 to reduce the Company's liabilities. During the third quarter, the
Company closed the Multi Housing Unit operations of FutureTrak, Inc. a
wholly owned subsidiary, and terminated relevant employees. In response
to uncertainties in the space scanner receiver and antenna equipment
business segment, the Company, during the fourth quarter, terminated
STI Group's relevant employees and prepared to relocate to more cost
effective facilities for the remaining executives.
As a result of the Company's continued downsizing efforts, the
Company's selling, general and administrative costs are expected to
decrease in 2000.
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Liquidity and Capital Resources
Net cash used in operating activities for the year ended 1999 amounted
to ($1,501,554) which primarily resulted from the Company's net loss
from operations of $3,894,141 (adjusted for non-cash charges (credits)
totaling $1,248,748). Net cash provided by financing activities for the
same period was $1,522,666 which primarily resulted from the receipt of
net proceeds during the first quarter of 1999 from the Company's
private placement of its securities under Rule 504 of Regulation D as
promulgated under the Securities Act and bridge financing executed
during the third quarter of 1999.
In 1999, the Company contemplated a third private placement of its
securities under Rule 504 of Regulation D, however, this offering never
took place.
The Company, during the fourth quarter, entered into an equity line
investment agreement with Eurofund Derivative Limited (Investor), Under
the agreement, the Company can receive up to an aggregate amount of
$4,000,000 if the investor exercises the full amount of a Class A
warrant issued to the Investor by the Company. The Class A warrant,
which expires on November 4, 2001, requires the investor to purchase
from the Company at the exercise price a certain number of shares based
upon an amount set by the Company from time to time over the life of
the warrant. The Company can receive up to $500,000 each 90- day period
over the life of the equity line investment agreement. The Company
exercised a put option on April 11, 2000 which requires Eurofund to
provide $500,000 of funding by August 15, 2000. To date, the Company
has not received any of the funding. The Company is uncertain whether
any monies from Eurofund will be received. If no funds are received the
Company will need to locate other sources of capital.
Management is currently seeking other sources of funding. The Company
will need to receive external funding over the next 12 months to
continue with its current business plan.
The Company's auditors have expressed doubt about the Company's ability
to continue as a going concern. The Company believes that the financing
provided by the equity line investment agreement, together with the net
cash to be provided by operations, if any, and other possible sources
of future financings, should be sufficient to meet its presently
anticipated cash needs for at least the next 12 months. However, there
can be no assurances that the Company will achieve profitability in the
next 12 months or that Eurofund will be able to exercise warrants;
therefore the Company may need to raise additional capital in the
future.
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Federal Payroll Taxes
The Company has not paid Federal payroll taxes on a timely basis. Total
payroll tax liability at December 31, 1999 amounted to $138,057 which
includes $42,901 in estimated penalties and interest.
No penalties have been assessed and management believes there are no
actions threatened on the state or federal level. As of February 28,
2000, the Company had no state tax liabilities.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operation contains various forward-looking statements,
which represent the Company's expectations or beliefs concerning future events .
The Company cautions that these statements are 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.
Item 3. Description of Property
Commencing January 1, 2000, WorldCast leases an executive suite located
at 20283 State Road 7, Suite 300, Boca Raton, Florida 33498. This space is
comprised of approximately 300 square feet and is leased for $834.78 per month.
-16-
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding common
stock beneficially owned on March 31, 2000 for each person or group known to be:
o the beneficial owner of 5% or more of outstanding
common stock;
o each of our executive officers and directors; and
o all executive officers and directors as a group.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within 60 days. At March
31, 2000, there were 9,481,195 shares of common stock outstanding. The address
for each of the persons below is WorldCast Interactive, Inc., 20283 State Road
7, Suite 300, Boca Raton, Florida 33498.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Ahmad Moradi 937,500
Steven Remondini 1,689,252
Robert S. Kelner 937,500
William E. Tessaro 2,567,500
All Officers and Directors as a Group 4,442,500
(3 persons)
</TABLE>
Item 5. Directors, Executive Officers and Control Persons
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C> <C>
Ahmad Moradi Chief Executive Officer and Director
Robert S. Kelner Chief Operating Officer and Director
William E. Tessaro Chief Technical Officer and Director
</TABLE>
Ahmad Moradi, 44 years old, has been chief executive officer and a
director since August 1998. Since 1992, he also served as President of g4, Inc.,
an information systems and business strategy consulting firm. Dr. Moradi
presently serves as a director and a consultant to technology-based public
company, including Netgate Inc., Maxwell-Rand Holdings, Inc. and Summus
Technology Ltd. From 1994 to 1996, he provided consulting services to numerous
public companies, including CompuMed,
-17-
<PAGE>
Westmark Mortgage Group Holding, Churchill Technologies, Inc. and Cyber-care
Inc. (formerly known as Heart Labs of America, Inc.). Dr. Moradi obtained a B.S.
and M.A. in the fields of mathematics, engineering and international business
from Florida Atlantic University. He received a Ph.D. in Management Information
Systems (MIS) from LaSalle University. Dr. Moradi devotes approximately 70% of
his professional efforts on WorldCast matters.
Robert Kelner, 45 years old, has served as chief operating officer and
a director since August 1998. He also serves as interim President since January
1, 2000 and interim Chief Financial Officer. From October 1997 to August 1998,
Mr. Kelner served as vice president of Strategic Alliances for Summus
Technologies, a government contractor specializing in static image and video
wavelet compression technologies. From 1995 to 1997, Mr. Kelner worked in the
marketing and sales department at Vincam, a professional employer organization,
and in the project management department at the World Trade Center. From 1979 to
1995, Mr. Kelner served as President of GKI, an importer and marketer of
consumer products to retail outlets. Mr. Kelner received a B.S. in business
administration, with a major in accounting, from the University of Florida. Mr.
Kelner devotes full time to the company.
William Tessaro, 37 years old, has served as chief technical officer
and a director of WorldCast since August 1998. From August 1993 to April 1998,
he served as a senior engineer and manager for Citrix Systems, a software
company. From September 1985 to August 1993, he served as an advanced
engineering systems engineer and manager for Electronic Data Systems, a
subsidiary of General Motors. Mr. Tessaro received a dual B.S. in mechanical
engineering and public policy from Carnegie Mellon University. Mr. Tessaro
devotes full time to the company.
Item 6. Executive Compensation
The following table show, for the past three fiscal years, the total
cash and other compensation paid by WorldCast to its Chief Executive Officer and
each other executive officer whose annual compensation exceeded $100,000. For
1998, each of our executive officers voluntarily accrued his salary until our
financial position permits payment to be made.
-18-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Other Compensation Salary
--------------------------- ---- ------------------ ------
<S> <C> <C> <C>
Steven Remondini 1999 811,160 shares of common stock $47,210
Former President 1998 261,176 shares of common stock $65,606
1997 none $52,600
Dr. Ahmad Moradi 1999 817,852 shares of common stock $45,533
Chief Executive Officer 1998 261,176 shares of common stock $26,250
1997 none $ 0
Robert Kelner 1999 817,936 shares of common stock $45,516
Chief Operating Officer 1998 261,176 shares of common stock $30,000
1997 none $ 0
William Tessaro 1999 813,936 shares of common stock $46,516
Chief Technical Officer 1998 261,176 shares of common stock $43,465
1997 none $ 0
</TABLE>
Executive compensation per the employment contracts were accrued in
1999 as in 1998. The total accrual in 1999 was approximately $814,000 as
compared to $261,000 in 1998. The Executives agreed to convert all accrued
payroll to equity in 2000 to reduce the Company's liabilities.
Effective January 1, 2000, Mr. Remondini resigned as the Company's
officer and director.
Employment Agreements
WorldCast has entered into employment agreements with Mr. Remondini,
Dr. Moradi, Mr. Kelner and Mr. Tessaro, each of which expire September 1, 2003.
Under these employment agreements, each officer receives an annual base salary
of $250,000. In connection with his employment, Dr. Moradi, and Messrs.
Remondini, Kelner and Tessaro are entitled to receive an annual incentive bonus
equal to no less than 1.5% of the net profits of WorldCast. None of Dr. Moradi
and Messrs. Remondini, Kelner and Tessaro received bonuses in 1998. Each
employment agreement is terminable by WorldCast for cause upon the occurrence of
certain events, or upon physical or mental disability or incapacity. In
addition, WorldCast may terminate each employment agreement without cause upon
30 days' written notice.
-19-
<PAGE>
Pursuant to their respective employment agreements, each of Dr. Moradi
and Messrs. Remondini, Kelner and Tessaro, in the event of a change of control
of WorldCast, are entitled to resign and receive a lump sum cash payment from
WorldCast in an amount equal to (1) the greater of (a) three year's salary or
(b) the base salary due employee for the remainder of the term and (2) an amount
equal to or multiple of two times the largest total of bonuses previously paid
in any one year to the employee.
On January 1, 2000, Mr Remondini resigned as chairman and president of
WorldCast.
Item 7. Certain Relationships And Related Transactions
In 1996 and 1997, Steven Remondini loaned WorldCast amounts totaling
$77,358 and $76,443 at December 31, 1997 and December 31, 1996, respectively.
Each loan has a zero interest rate and no due date. The amounts were paid in
full in 1998.
In March 1999, Dr. Moradi acquired restricted shares valued at
$300,000, Mr. Kelner acquired restricted shares valued at $300,000, Mr.
Remondini acquired restricted shares valued at $525,360. In April 1999, Mr.
Tessaro acquired restricted shares valued at $683,200. In each case, the
purchase price for the shares, which were valued at $.32 per share, was paid
with the proceeds of a loan to the purchasers from WorldCast, bearing interest
at the prime rate of New York, adjusted quarterly, plus two (2%) percent per
annum. This interest accrues from March 22, 1999 until September 1, 2001.
Commencing September 1, 2001, accrued and current interest payable under the
promissory note relating to each loan will be paid on a monthly basis through
August 20, 2003. Payments of all unpaid accrued interest and principal are due
August 30, 2003. If a borrower defaults on the loan, WorldCast may accept
cancellation of the borrower's employment agreement as satisfaction of the loan.
In addition, if an employment agreement between WorldCast and any of the
borrowers is terminated by notice by WorldCast, by reason of breach by WorldCast
or if WorldCast ceases to conduct business, the loan from WorldCast may, at the
borrower's option, be forgiven.
At December 31, 1999, the balance owed, inclusive of accrued interest,
by Messrs. Remondini, Kelner and Tessaro equals $1,939,269.
In connection with a separation agreement effective as of January 1,
2000, Mr. Remondini has agreed to sell all except 500,000 shares of common stock
owned by him to satisfy his loan obligation to our company provided further,
however, that he may retain 20% of the proceeds for personal tax obligations.
During 1998, Mr. Tessaro loaned WorldCast an aggregate of $171,204,
evidenced by a promissory note from WorldCast in Mr. Tessaro's favor. The note
bears interest at the Prime Rate of New York, adjusted quarterly, plus two (2%)
percent per annum. The loan
-20-
<PAGE>
is payable interest only and balloons on August 1, 2000. Mr. Tessaro has
converted the outstanding amount of the loan into 1,109,333 WorldCast common
stock.
Item 8. Description of Securities
Under its certificate of incorporation, WorldCast is authorized to
issue up to 100,000,000 shares of common stock, par value $.001 per share, of
which 9,481,195 shares were outstanding as of December 31, 1999. WorldCast is
also authorized to issue up to 5,000,000 shares of preferred stock, par value
$.001 per share, none of which shares were issued and outstanding as of December
31, 1999.
Common Stock
Each shareholder is entitled to one vote for each share of common stock
owned of record. The holders of shares of common stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors.
Therefore, the holders of the remaining shares will be unable to elect any
directors. Holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. Upon the
liquidation, dissolution, or winding up of WorldCast, the assets legally
available for distribution will be distributed ratably among the holders of the
shares outstanding at the time. Holders of the shares of common stock have no
preemptive, conversion, or subscription rights, and shares are not subject to
redemption. All outstanding shares of common stock will be fully paid and
non-assessable.
Preferred Stock
Under its certificate of incorporation, WorldCast is authorized to
issue preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors will be empowered, without shareholder approval, to issue
additional preferred stock with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of WorldCast's stock. If issued, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change of control of WorldCast.
Florida Legislation
Florida has enacted legislation that may deter or frustrate a takeover
of a Florida corporation. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by
-21-
<PAGE>
disinterested directors or shareholders of certain specified transactions
between a corporation and holders of more than 10% of the outstanding voting
shares of the corporation (or their affiliates). Under Florida Law, WorldCast
may require indemnification of its directors, officers, executive officers and
agents.
-22-
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Currently, our securities are not traded in any market. We were
delisted from the Over-the-Counter Bulletin Board in December 1999. There were
approximately 450 holders of our common stock as of March 31, 2000. Our
quarterly range use of high and low bid prices on our common stock is as
follows:
<TABLE>
<CAPTION>
1998 1999 2000
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 12.00 4.50 1.52 1.00 .75 .25
2nd Quarter 8.5 4.00 1.75 1.25
3rd Quarter 4.95 3.89 1.63 0.29
4th Quarter 2.10 1.43 0.69 0.22
</TABLE>
WorldCast's common stock began trading publicly in the fourth quarter
of 1997. All information in this chart has been restated to give effect
retroactively to WorldCast's reverse stock split at the rate of 1:4 in April
1999.
Under its certificate of incorporation, WorldCast is authorized to
issue up to 100,000,000 shares of common stock, par value $.001 per share, of
which 9,481,195 shares were outstanding as of December 31, 1999. WorldCast is
also authorized to issue up to 5,000,000 shares of preferred stock, par value
$.001 per share, none of which shares were issued and outstanding as of December
31, 1999. There are also 100,000 warrants to purchase shares of common stock
exercisable at $.50 per share outstanding as of December 31, 1999.
There are outstanding warrants to purchase 100,000 shares of our common
stock at a purchase price of $.50 per share, exercisable between December 15,
1999 and December 15, 2001.
As of December 31, 1999, there were approximately 6,532,001 shares
eligible for resale under Rule 144 of the Securities Act.
We have never paid cash dividends on our common stock. We presently
intend to retain future earnings, if any, to finance the expansion of business
and do not anticipate that any cash dividends will be paid in the foreseeable
future. The future dividend policy
-23-
<PAGE>
will depend on our earnings, capital requirements, expansion plans, financial
condition and other relevant factors.
Item 2. Legal Proceedings
WorldCast and certain of its officers are named defendants in an action
brought by Charter Memories, Inc. on May 4, 1999 in the United States District
Court, Central District of California, for damages totaling approximately
$96,000, for alleged misrepresentation concerning the qualities and
characteristics of space scanner receiver and antenna equipment purchased by
Charter Memories. WorldCast is presently conducting discussions regarding
settlement of this case.
In addition, WorldCast has accrued warranty and refund claims, in the
amount of approximately $447,000 (this amount was preliminarily valued at
$865,000, but after subsequent detailed reconciliation and review of records,
the amount was reduced to reflect actual claims), related to problems with the
performance of the space scanner receiver and antenna equipment. WorldCast
believes that, under its master distribution agreement, galaxis GmbH is
responsible for all payments due regarding these claims. WorldCast is pursuing
aggressively all available remedies, including bringing legal proceedings
against galaxis GmbH in an attempt to recover damages under the master
distribution agreement in relation to such claims.
WorldCast and galaxis GmbH have engaged in settlement discussions and
management believes that a resolution fo this matter on reasonable terms is
likely.
Item 3. Changes in and Disagreements with Accountants
In January 1999, the Board of Directors appointed Grant Thornton as the
accountants of WorldCast replacing Clancy & Co., PLLC. The Board recommended the
change in order to engage an accounting firm with a national presence. There
were no disagreements with Clancy & Co. required to be reported under Item 304
of Regulation S-B of the Securities Act of 1933.
Item 4. Recent Sales of Unregistered Securities
In September 1997, WorldCast consummated the sale of 1,000,000 shares
of common stock to 88 individuals for a purchase price of $1.00 per share,
receiving approximately net proceeds of $850,000. This offering was made without
registration under the Securities Act to accredited or otherwise qualified
investors pursuant to the exemption from registration afforded by Section 4(2)
and Rule 504 of Regulation D promulgated under the Securities Act. The cost
associated with the transaction of approximately $100,000 was commissions. The
dates of sale were during August and September.
-24-
<PAGE>
In October 1997, WorldCast issued 63,750 shares of common stock to the
following individuals or entities in exchange for consulting services rendered
to it: Bernard Little (7,500 shares); Global Consulting Group, Inc. (50,000
shares); Andover Consulting , Inc. (5,000 shares); and Barbara Sullivan (1,250
shares). Services rendered were valued at $1.00 per share. Inasmuch as each of
these individuals or entities had access to information about WorldCast and were
either accredited or otherwise sophisticated investors, these issuances
qualified for exemption from registration under the exemption set forth in
Section 4(2) of the Securities Act.
In January 1999, WorldCast consummated the sale of 3,542,101 shares of
its common stock for an average purchase price of $.25 per share, receiving
approximate net proceeds of $876,000. Sales were made to 20 investors. This
offering was made without registration under the Securities Act to accredited or
otherwise qualified investors pursuant to the exemption from registration
afforded by Section 3(b) and Rule 504 of Regulation D promulgated under the
Securities Act.
On February 2, 1999, WorldCast issued 50,000 shares of common stock to
Satellite Technologies as consideration for the purchase of Satellite's assets.
This company had access to relevant information concerning WorldCast; therefore,
this transaction was exempt from registration pursuant to the exemption set
forth in Section 4(2) of the Securities Act. The transaction was valued at $4.80
per share.
On February 23, 1999, WorldCast issued 19,420 shares of common stock to
Shreyas Gandhi, an employee, in consideration of services rendered by Mr.
Gandhi. Inasmuch as Mr. Gandhi, as an employee, had a pre-existing relationship
with WorldCast and access to relevant information concerning WorldCast; this
transaction was exempt from registration pursuant to the exemption set forth in
Section 4(2) fo the Securities Act. The issuance was valued at $2.88 per share.
On March 17, 1999, WorldCast issued the following shares of common
stock to the following executive officers pursuant to their respective
employment contracts: 1,641,750 shares to Steven Remondini; 937,500 shares to
Ahmad Moradi; 2,135,000 shares to William Tessaro; and 937,500 shares to Robert
Kelner. Inasmuch as each of these individuals are accredited investors within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act,
these transactions were exempt from registration under Section 4(2) fo the
Securities Act. Shares issued in this transaction were valued at $.32 per share.
On March 19, 1999, WorldCast issued 6,250 shares to John Muczko, a
consultant, in consideration of consulting services rendered. Inasmuch as Mr.
Muczko had a pre- existing relationship with WorldCast and access to relevant
information concerning WorldCast; this transaction was exempt from registration
pursuant to the exemption set forth in Section 4(2) of the Securities Act. The
issuance was valued at $4.00 per share.
-25-
<PAGE>
On March 30, 1999, WorldCast issued 10,000 shares of common stock to
each of Steven Chu and Jerry Alexander in consideration of financial consulting
services rendered. Inasmuch as each of Mr. Alexander and Mr. Chu had a
pre-existing relationship with WorldCast and access to relevant information
concerning WorldCast; this transaction was exempt from registration pursuant to
the exemption set forth in Section 4(2) of the Securities Act. The issuance was
valued at $3.52 per share.
In March 1999, Dr. Moradi acquired restricted shares valued at
$300,000, Mr. Kelner acquired restricted shares valued at $300,000, Mr.
Remondini acquired restricted shares valued at $525,360. In April 1999, Mr.
Tessaro acquired restricted shares valued at $683,200. In each case, the
purchase price for the shares acquired was paid with the proceeds of a loan to
the purchasers from WorldCast, bearing interest at the prime rate of New York,
adjusted quarterly, plus two (2%) percent per annum. This interest accrues from
March 22, 1999 until September 1, 2001. Commencing September 1, 2001, accrued
and current interest payable under the promissory note relating to each loan
will be paid by each executive officer on a monthly basis through August 20,
2003. Payments of all unpaid accrued interest and principal are due August 30,
2003. If a borrower defaults on the loan, WorldCast may accept cancellation of
the borrower's employment agreement as satisfaction of the loan. In addition, if
an employment agreement between WorldCast and any of the borrowers is terminated
by notice by WorldCast, by reason of breach by WorldCast or if WorldCast ceases
to conduct business, the loan from WorldCast may, at the borrower's option, be
forgiven.
On November 3, 1999, WorldCast caused the issuance into escrow of
2,975,000 shares of common stock to M. Holdings, as collateral to be held for a
$500,000 bridge loan from that company. The interest rate on the loan was 5%.
The shares were subsequently exchanged in satisfaction of the loan. Inasmuch as
M Holdings is an accredited investor within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act, and had access to relevant
information concerning WorldCast; this transaction was exempt from registration
pursuant to the exemption set forth in Section 4(2) of the Securities Act.
On November 22, 1999, WorldCast issues 60,000 shares of common stock to
Ryan Capital Management Corp. in consideration of $15,000. Inasmuch as Ryan
Capital management Corp. is an accredited investor within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, and had access to
relevant information concerning WorldCast; this transaction was exempt from
registration pursuant to the exemption set forth in Section 4(2) of the
Securities Act. The issuance was valued at $.25 per share.
Subsequent Conversion of Notes
Through March 31,2000, the Company completed several agreements with
debt holders, executive management and former employees which converted
liabilities totaling $2,454,824.00 into 10,541,547 shares of the Company's stock
at an average price of $.23 per share. An additional $775,664.00 in liabilities
were subsequently converted to
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<PAGE>
1,723,698 shares of the Company's stock as of April 7, 2000. These transactions
were made in reliance of the exemption from registration provided by Section
4(2) of the Securities Act.
The Company raised a total of approximately $153,000 to fund
operations. The capital was obtained from a private investor ($124,000) and a
related party ($29,000). On March 15, 2000, these investments were converted at
$.1875 per share 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 the $124,000.00 loan and 154,667 shares of common stock for the
$29,000.00
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 ($208,000.00) 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.
Item 5. Indemnification of Directors and Officers
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations. Article X of
WorldCast's certificate of incorporation provides as follows:
We may indemnify any director, officer, agent, employee or agent of the
Company to the fullest extent permitted by Florida law.
In addition, Article (IV) of WorldCast's by-laws provides as follows:
Any person, his heirs, or personal representative, made or threatened
to be made a party to any threatened, pending, or completed action or
proceeding, whether civil, criminal, administrative, or investigative,
because he, his testator, or intestate is or was a director, officer,
employee, or agent of this corporation or serves or served any other
corporation or other enterprise in any capacity at the request of this
corporation, shall be indemnified by this corporation, and this
corporation may advance his related expenses to the full extent
permitted by law. In discharging his duty, any director, officer,
employee, or agent, when acting in good faith, may rely upon
information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented
by (1) one or more officers or employees of the corporation whom the
director, officer, employee or agent reasonably believes to be reliable
and competent in the matters presented, (2) counsel, public accountants
or other persons as to matters that the director, officer, employee or
agent believes to be within that person's professional or expert
competence, or (3) in the case of a director,
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<PAGE>
a committee of the board of directors upon which he does not serve,
duly designated according to law, as to matters within its designated
authority, if the director reasonably believes that the committee is
competent. The foregoing right of indemnification or reimbursement
shall not be exclusive of other rights to which the person, his heirs
or personal representatives may be entitled. The corporation may, upon
the affirmative vote of a majority of its board of directors, purchase
insurance for the purpose of indemnifying these persons. The insurance
may be for the benefit of all directors, officers or employees.
-28-
<PAGE>
PART F/S
The financial statements and supplementary data are included herein.
Financial Statements and Exhibits
The following audited financial statements for WorldCast, including the
audited balance sheet at December 31, 1999 and 1998 and the related statements
of operations, changes in stockholders' deficit, and cash flows for each of the
years ended December 31, 1999 and 1998.
Contents
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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<PAGE>
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
WORLDCAST INTERACTIVE, INC.
December 31, 1999 and 1998
<TABLE>
<CAPTION>
C O N T E N T S
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEETS F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF SHAREHOLDERS' DEFICIT F-4
STATEMENTS OF CASH FLOWS F-5 - 6
NOTES TO FINANCIAL STATEMENTS F-7 - 16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
WorldCast Interactive, Inc.
We have audited the accompanying balance sheet of WorldCast Interactive, Inc.
and Subsidiaries (the "Company"), as of December 31, 1999 and 1998, and the
related statements of operations, shareholders' deficit and cash flows for the
years then ended. The 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 audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WorldCast Interactive, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $3,894,141 for the year ended December 31,
1999, and as of this date, the company's liabilities exceed its assets by
$4,074,104. These factors raise substantial doubt about the Company' ability to
continue as a going concern. Managements' plans in regard to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome from this uncertainty.
/s/ Grant Thornton LLP
Weston, Florida
April 7, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
WorldCast Interactive, Inc.
BALANCE SHEETS
December 31,
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash $ 1,017 $ 25,574
Trade accounts receivable, net of allowance for
doubtful accounts of $-0- and $19,162 in
1999 and 1998, respectively 2,255 26,827
Inventory -- 61,466
Prepaid expenses and other current assets -- 6,423
----------- -----------
Total current assets 3,272 179,042
Property and equipment, net 51,931 77,163
Other assets -- 2,492
Notes receivable -- 645
----------- -----------
Total assets $ 55,203 $ 209,590
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 665,877 $ 295,865
Accrued payroll 1,190,503 261,132
Accrued payroll taxes 138,057 --
Warranty liability 447,000 --
Due to officers 221,586 140,100
Notes payable, current portion 523,324 105,424
Accrued expenses 204,613 23,293
Note payable STI 150,347 --
Bridge financing 588,000 --
----------- -----------
Total current liabilities 4,129,307 825,814
Notes payable, net of current portion -- 457,576
Commitments -- --
Shareholders' deficit
Preferred stock, $.001 par value, 5,000,000 shares
authorized none issued -- --
Common stock, $.001 par value, 100,000,000 shares
authorized, 9,481,195 and 3,039,200 shares issued
and outstanding in 1999 and 1998, respectively 37,925 12,157
Additional paid in capital 4,603,214 1,926,585
Notes receivable - officers (1,808,560) --
Accumulated deficit (6,906,683) (3,012,542)
----------- -----------
Total shareholders' deficit (4,074,104) (1,073,800)
----------- -----------
Total liabilities and shareholders' deficit $ 55,203 $ 209,590
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
WorldCast Interactive, Inc.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Sales $ 132,503 $ 442,349
Cost of goods sold 667,858 463,416
----------- -----------
Gross margin (535,355) (21,067)
Selling, general and administrative expenses 3,173,650 1,795,588
----------- -----------
Operating loss (3,709,005) (1,816,655)
Other income (expense)
Other income 520 1,227
Interest expense (185,656) (88,934)
----------- -----------
Total other expense (185,136) (87,707)
----------- -----------
Net loss $(3,894,141) $(1,904,362)
=========== ===========
Net loss per share of common stock:
Basic $ (.49) $ (.68)
=========== ===========
Weighted average shares outstanding:
Basic 7,919,836 2,809,600
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
WorldCast Interactive, Inc.
STATEMENT OF SHAREHOLDERS' DEFICIT
For the Years Ended December 31, 1999 and 1998
Common Stock Additional Notes
--------------------------- Paid-in Receivable Accumulated
Shares Amount Capital Officers Deficit Total
---------------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1998 2,757,500 $ 11,030 $ 978,970 $ -- $(1,108,180) $ (118,180)
Net loss
for 1998 -- -- -- -- (1,904,362) (1,904,362)
Issuance of
common
stock 204,641 819 393,072 -- -- 393,891
Conversion
of debentures 77,059 308 124,692 -- -- 125,000
Forgiveness
of debt by a
related party -- -- 429,851 -- -- 429,851
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 3,039,200 12,157 1,926,585 -- (3,012,542) (1,073,800)
Net loss for 1999 -- -- -- -- (3,894,141) (3,894,141)
Notes receivable
officers -- -- -- (1,808,560) -- (1,808,560)
Issuance of
common
stock 6,396,322 25,585 2,525,484 -- --
2,551,069
Stock issued
for services 45,670 183 151,145 -- -- 151,328
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1999 9,481,195 $ 37,925 $ 4,603,214 $(1,808,560) $(6,906,683) $(4,074,104)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
WorldCast Interactive, Inc.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(3,894,141) $(1,904,362)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write down of property and equipment 45,013 25,850
Depreciation expense 25,888 37,440
Common stock issued for services 151,328 139,650
Decrease in operating assets
Accounts/notes receivable 34,217 113,829
Inventory 61,466 168,178
Prepaid expenses and other current assets 6,423 11,977
Other assets 2,492 --
Increase in operating liabilities
Accounts payable 370,012 234,719
Accrued payroll and expenses 1,248,748 305,492
Warranty liability 447,000 --
----------- -----------
Total adjustments 2,392,587 1,011,285
----------- -----------
Net cash used in operating activities (1,501,554) (893,077)
Cash flows from investing activities
Purchases of property and equipment (45,669) (24,237)
----------- -----------
Net cash used in investing activities (45,669) (24,237)
----------- -----------
Cash flows from financing activities
Proceeds from notes payable 160,347 335,159
Proceeds from officer loans 81,486 140,000
Proceeds from sale of debentures -- 125,000
Proceeds from sale of Common Stock 742,509 254,240
Proceeds from bridge financing 588,000 --
Payments on notes payable (49,676) (93,577)
----------- -----------
Net cash provided by financing activities 1,522,666 760,922
----------- -----------
Net decrease in cash (24,558) (156,392)
Cash, beginning of year 25,574 181,966
----------- -----------
Cash, end of year $ 1,016 $ 25,574
=========== ===========
(continued)
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WorldCast Interactive, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 185,656 $ 90,802
================ ===============
Supplemental disclosure of non-cash transactions
Common stock issued for services $ 151,328 $ 139,650
================ ===============
Conversion of debentures $ -- $ 125,000
================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization on 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 mobile satellite antennas
to the yachting industry, allowing the yachts to receive satellite
transmissions while at sea. Beginning in fiscal 1999, the Company changed
their business approach to providing wiring infrastructure to multi housing
communities, which enables the tenants to obtain Direct TV and high speed
internet access. The Company was incorporated on January 24, 1996, under
the name Future Vision. On June 16, 1997, the Company amended its articles
of incorporation and changed its name to Futuretrak International, Inc. On
May 5, 1997, 90% or 2,250,000 shares of the outstanding stock was purchased
from the existing shareholders by World Vision Entertainment, Inc. On July
15, 1998, Palm Bay Capital, Inc. purchased 1,750,000 shares from World
Vision Entertainment, See further detail of this transaction at Note F.
Principles of Consolidation
---------------------------
The financial statements for the year ended December 31, 1999 represents
the consolidated results of the Company and its wholly-owned subsidiaries -
Futuretrak, Inc., Maxwell Technologies, Inc. and STI Group, Inc.
Futuretrak, Inc. and Maxwell Technologies, Inc. were incorporated during
1999 and have no operations. STI Group, Inc. was incorporated as a result
of the purchase of certain assets in January 1999 from Satellite
Technology, Inc. (see Note N) and has no operations. All intercompany
balances have been eliminated in consolidation. The financial statements as
of December 31, 1998 and for the year then ended only included the
operations of the Company without any subsidiaries.
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.
(continued)
F-7
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Inventory
---------
Inventory, consisting of Raw materials and Finished Goods, is stated at the
lower of cost (Average Cost basis) or market.
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
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.
Product Warranty
----------------
The Company warrants its products against defects in design, material and
workmanship for one year. A provision was recorded in 1999 due to technical
problems with the Company's product (see Note K).
Income Taxes
------------
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires the Company to recognize deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
Reclassifications
-----------------
Certain reclassifications have been made to the 1998 amounts to conform to
the 1999 presentation.
(continued)
F-8
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 1999 and 1998.
Reverse Stock Split
-------------------
The Board of Directors declared a one-for-four common stock reverse split
for shareholders of record on April 16, 1999. All common stock related data
for all periods presented have been restated to reflect the reverse stock
split.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial losses from operations since inception which has resulted in a
deterioration in the Company's financial position. In addition, the Company
is delinquent in paying its fourth quarter 1998 and all of 1999 Federal
payroll taxes which amounts to $138,057 (including $42,901 of penalties and
interest).
The recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon commencement of
successful operations of the Company, which in turn is dependent upon the
Company's ability to finance its future operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded assets and liability amounts which might
result from the above uncertainties.
The Company has and will continue to take a number of steps to reduce its
operating losses. The Company reduced operating expenses by terminating all
staff during the fourth quarter of 1999 and relocated to smaller facilities
in January 2000. As referenced in Note P, the Company entered into an
equity investment agreement with Eurofund Derivatives Limited.
Management believes that a result of the action stated above, the Company
can continue in existence for the next twelve months; however, there is no
assurance that such action will be consummated or will eliminate the
Company's need for additional capital.
F-9
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE C - INVENTORIES
Inventories consist of raw material and amounted to $-0- and $61,466 at
December 31, 1999 and 1998, respectively. There were no finished goods
inventory at December 31, 1999 and 1998.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Office and computer equipment $ 42,622 $ 44,022
Furniture and fixtures 1,521 3,207
Show displays and equipment 86,064 83,997
Leasehold improvements -- 2,415
------------- -------------
130,207 133,641
Less: Accumulated depreciation (78,276) (56,478)
------------- -------------
$ 51,931 $ 77,163
============= =============
</TABLE>
NOTE E - INCOME TAXES
At December 31, 1999, the Company did not record any tax provision
(benefit). The tax provision (benefit) is different from that which would
be obtained by applying the statutory federal income tax rate to income
(loss) primarily because of the valuation allowance recorded against
deferred tax assets.
Significant components of the Company's deferred tax assets (liabilities)at
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net operating loss carryforward $ 1,500,000 $ 1,000,000
Accrued expenses 480,000 --
------------- -------------
Net deferred tax asset 1,980,000 1,000,000
Less valuation allowance (1,980,000) (1,000,000)
------------- -------------
$ -- $ --
============= =============
(continued)
</TABLE>
F-10
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE E - INCOME TAXES - Continued
Based on the Company's prior earnings and the amount of income that could
be utilized in carryback years, and the uncertainty of future taxable
income, it is more likely than not that these deferred tax assets will not
be realized. Therefore, a 100% valuation allowance has been established to
reduce deferred tax assets.
The federal and state net operating loss carryforward amounted to
approximately $5,300,000, and $3,000,000 in 1999 and 1998 respectively. The
net operating losses will expire in 2011-2019.
NOTE F - RELATED PARTY TRANSACTIONS
During 1998, World Vision Entertainment (WVE) sold 1,750,000 of the
2,250,000 shares of the Company that they owned to Palm Bay Capital, Inc.,
which was funded by means of loans from two officers and a shareholder.
Subsequent to the purchase, 1,500,000 of the shares were distributed to the
officers and shareholder. Palm Bay Capital currently owns 250,000 shares.
As a result of the sale of shares from WVE to Palm Bay Capital, WVE forgave
a note in the amount of $429,851 from the Company. Since WVE was a major
shareholder, this forgiveness of debt was recorded as additional paid in
capital.
The Company owes $163,000 and $360,324, to two financial institutions which
are both owned by a shareholder of the Company.
NOTE G - NOTES PAYABLE
The following is a summary of Notes Payable at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Unsecured note payable, to a financial institution dated
September 11, 1996 with monthly payments of $10,402
including interest at the rate of 12% per annum. Matures
January 2003. The Company has not made the required
payments and is currently in default of this loan. $ 360,324 $ 395,000
(continued)
F-11
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE G - NOTES PAYABLE - Continued
1999 1998
------------- ------------
Unsecured note payable, to a financial institution, dated
June 12, 1998 with monthly payments of $4,292 including
interest at a rate of 12%. Matures January 2003. The
Company has not made the required payments and is
currently in default of this loan. $ 163,000 $ 163,000
Noninterest bearing, unsecured note payable to a former
shareholder, due upon demand. -- 5,000
------------- -------------
523,324 563,000
Less: current portion -- 105,424
------------- -------------
$ 523,324 $ 457,576
============= =============
</TABLE>
NOTE H - ACCRUED PAYROLL TAXES
The Company has not paid Federal payroll taxes on a timely basis. Total
payroll tax liability at December 31, 1999 amounted to $138,057 which
includes $42,901 in estimated penalties and interest.
NOTE I - DUE TO OFFICERS
Due to officers consist of loans to the Company by certain officers of the
Company. The notes are non-interest bearing and is due upon demand. The
Company intends to pay the notes in full in 2000.
NOTE J - BRIDGE FINANCING
On July 2, 1999, the Company and Celerity Systems, Inc. consummated a joint
financing management with a private investor of which the proceeds to the
Company were $450,000. The total loan amount of $1,000,000 and interest
amounting to $200,000 were to have been converted into shares of the merged
company on October 25, 1999; however, the merger has not occurred and the
parties are considering renegotiating the terms of this obligation. The
loan is collaterallized by $2,000,000 of the Company and Celerity shares in
the rates of 90% of the Company's shares and 10% of Celerity shares. The
loan plus accrued interest was due December 15, 1999. The Company is
currently negotiating with the private investor to extend the term of the
loan. At December 31, 1999, the Company's liability to the private investor
was $500,000.
(continued)
F-12
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE J - BRIDGE FINANCING - Continued
On June 1, 1999, the Company obtained a $50,000 Bridge loan from Ryan
Capital Management Corp. with $60,000 (including $10,000 of accrued
interest) due September 30, 1999. On November 27, 1999, the term of the
loan was extended for another 121 days. As of April 7, 2000, the Company
has not paid the loan due to cash flow difficulties.
On June 18, 1999, the Company obtained a $65,000 bridge loan from an
investor. The balance at December 31, 1999 amounted to $28,000 and is due
when funds become available.
NOTE K - COMMITMENTS AND CONTINGENCIES
Leases
The Company occupied 2,300 square feet of office and warehouse space in
Pompano Beach, Florida under a noncancelable lease which expired in
January, 2000. Rent expense for the years ended December 31, 1999 and 1998
was $28,310 and $28,384, respectively.
Effective January 1, 1999, the company entered into a license agreement
with Corporate Executive Suites West, Inc. to use an occupy an office suite
for $450 per month through December 31, 2000.
On February 12, 1997, the Company entered into an operating lease for
certain equipment with American Business Credit Corp., which expires
January 12, 2001. The lease expense for the years ended December 31, 1999
and 1998 was $3,564 and $3,564 respectively.
The Company's future minimum operating lease commitments are as follows:
Amount
----------------
2000 $ 3,564
2001 111
----------------
Total $ 3,675
================
(continued)
F-13
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE K - COMMITMENTS AND CONTINGENCIES - Continued
Employment Agreements
---------------------
The Company has entered into employment agreements with four of its
executive officers for an initial period of five years, and year to year
thereafter unless either party gives 180 days written notice not to renew
the agreement. The agreements provide that if the employee is terminated
after change in control of the Company, the employee is to receive the
larger of (1) three years base salary, or (2) the base salary due to
employee for the remaining term of the agreement, or (3) an amount equal to
two times the largest total of the bonuses previously paid in any one year
by the Company to the employee.
Product Warranty Claims
-----------------------
The Company has sold certain products in 1998 and 1999 which are covered by
the Company's one year warranty policy. As a result of certain technical
problems with the product, customers have made various claims and the
Company has accrued approximately $447,000 for the cost of these claims and
additional claims expected to be incurred. The Company continues to pursue
counter claims against the product designer.
Legal Proceedings
-----------------
WorldCast and certain of its officers are named defendants in an action
brought by Charter Memories, Inc. on May 4, 1999 in the United States
District Court, Central District of California, for damages totaling
approximately $96,000, for alleged misrepresentation concerning the
qualities and characteristics of certain equipment purchased by Charter
Memories. WorldCast is presently conducting discussions regarding
settlement of this case.
NOTE L - STOCKHOLDERS EQUITY
During 1998, debentures in the amount of $125,000 were converted into
308,235 shares of common stock.
On January 11, 1999, the Company amended its Articles of Incorporation to
increase the authorized shares from 50,000,000 to 100,000,000 shares.
F-14
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE M - STOCK SUBSCRIPTIONS
On March 15, 1999, the Company issued 5,651,750 shares of common stock to
four officers in exchange for promissory notes of $1,808,560. The notes are
collateralized by officers employment agreements and bear interest at prime
plus 2%. Commencing September 1, 2001, accrued interest will be paid on a
monthly basis through August 30, 2003. All unpaid accrued interest and
principal is due August 30, 2003. If the officers default on the loan, the
Company may cancel the officer's employment agreement as satisfaction for
the loan. The promissory notes of $1,808,560 is included as a component of
paid-in capital in the statement of shareholders' deficit in the
accompanying financial statements.
Effective January 1, 2000, the Company terminated the employment of one of
the officers. As a result, the promissory note from this officer of
$525,360 is no longer collateralized. In addition, the Company under the
terms of the employment agreement, was liable for the balance of the
employment agreement. In April, 2000, the Company entered into an agreement
with the officer to settle the foregoing matter. Under the agreement the
Company agrees to receive from the officer 80% of the proceeds from the
future sale (but no later than December 31, 2000) of 1,189,259 shares of
the Company's stock held by the officer. To the extent the proceeds
received is insufficient to recover the remaining portion of the note, the
Company will forgive the remaining debt. Due to the volatility of the
Company's stock there is no guarantee that the whole amount of the note
will be recovered. In exchange, the officer will relinquish his rights
under the employment agreement.
NOTE N - ACQUISITION OF ASSETS
In January, 1999, the Company entered into an agreement to purchase the
assets of Satellite Technology, Inc. (STI), a former distributor/dealer for
the Company. STI is a distributor of satellite space scanners and antenna
control units. The agreement included the issuance of 200,000 shares of
common stock and promissory note in the amount of $160,347 for the assets
of STI. The note bears interest at a rate of prime plus 2%, with monthly
principal payments of $20,049 beginning no later than May 5, 1999 (unless
additional funding becomes available sooner to the maker after the
contemplated offering pursuant to Rule 504 of Regulation D under the
Securities Act of 1933, in which case the first payment shall be due within
15 days of the date such funds become available). The note shall mature,
and any remaining principle and accrued but unpaid interest shall be due
and payable on January 5, 2000. At December 31, 1999, the Company has not
made the required monthly principal payments under the terms of the loan
and therefore is currently in default on this loan. In addition, the
contemplated offering pursuant to Rule 504 of Regulation D did not
materialize.
F-15
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE O - WARRANTS
In connection with the Bridge Financing between the Company, Celerity
Systems and a private investor (see Note J), the Company issued warrants to
the underwriters of the transaction. The Company issued two warrants each
giving the holder the right to 100,000 shares of the Company's common stock
at an exercise price of $1.50 per share.
NOTE P - FUNDING AGREEMENT
On November 2, 1999, the Company entered into an equity investment line
agreement with Eurofund Derivatives Limited (investor). Under the
agreement, the Company can receive up to an aggregate amount of $4,000,000
if the investor exercises the full amount of a Class A warrants issued to
the investor by the Company. The Class A warrants, which expire on November
4, 2001, entitles the investor to purchase from the Company at the exercise
price a certain number of shares based upon an exercise price set by the
Company from time to time over the life of the warrants. The agreement
gives the Company the ability to "put" the warrants to the investor thus
requiring exercise of a portion of the warrants on a quarterly basis. In
April 2000, the Company exercised a part to require the investor to
purchase $500,000 of stock; however no funds have yet been received from
the investor.
NOTE Q - SUBSEQUENT EVENT
On March 13, 2000, the Board of Directors authorized the conversion of
specific indebtedness of the Company to equity. Through April 7, 2000 the
Company had converted $3,230,489 of debt into 12,265,665 shares of common
stock.
F-16
<PAGE>
PART III
Item 1. Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger among Celerity Systems, Inc., FutureTrak Merger
Corp. and WorldCast Interactive, Inc.
3.1(a) Articles of Incorporation of FutureVision, Incorporated dated January 24, 1996.
3.1(b) By-laws of FutureVision
3.1(c) Articles of Amendment of WorldCast Interactive, Inc. filed August 1, 1997.
3.1(d) Articles of Amendment of WorldCast Interactive, Inc. filed August 14, 1997.
3.1(e) Articles of Amendment of WorldCast Interactive, Inc. effective May 13, 1999.
3.1(f) Articles of Amendment of WorldCast Interactive, Inc. dated May 5, 1999.
3.1(g) Articles of Amendment of WorldCast Interactive, Inc. dated May 13, 1999.
3.1(h) Articles of Amendment of WorldCast Interactive, Inc. dated October 19, 1999.
3.1(i) Articles of Amendment of WorldCast Interactive, Inc. dated November 10, 1999.
4.1 Warrant Agreement between WorldCast Interactive, Inc. and M Holdings, Inc.
10.1 Employment Agreement between WorldCast Interactive, Inc. and Ahmad Moradi
10.2 Employment Agreement between WorldCast Interactive, Inc. and Steven Remondini
10.3 Employment Agreement between WorldCast Interactive, Inc. and Robert Kelner
10.4 Employment Agreement between WorldCast Interactive, Inc. and William Tessaro
10.5 Lease Agreement between Copans Road Associates and Futurevision Incorporated
10.6 $395,000 Negotiable Promissory Note dated March 1, 1999 payable by FutureTrak
International, Inc. to the order of First Capital Services, Inc.
10.7 $160,347 Promissory Note dated January 5, 1999 payable by FutureTrak
International, Inc. to the order of Satellite Technology, Inc.
10.8 Promissory Note payable by WorldCast Interactive, Inc. to William E. Tessaro
10.9 Promissory Note payable to WorldCast Interactive, Inc. by Robert S. Kelner
10.10 Promissory Note payable to WorldCast Interactive, Inc. by Ahmad Moradi
10.11 Promissory Note payable to WorldCast Interactive, Inc. by William E. Tessaro
10.12 Promissory Note payable to WorldCast Interactive, Inc. by Steve Remondini
10.13 System Operator Agreement between Golden Sky and WorldCast Interactive, Inc.
10.14 Sales Representative Agreement by and between WorldCast Interactive, Inc. and
Gulfstream Marine Products, Inc.
10.15 Agreement for Purchase and Sale of Assets by and among WorldCast Interactive,
Inc. and Satellite Technology, Inc. dated as of January 5, 1999.
10.16 WorldCast Interactive, Inc. 1998 Stock Option Plan.
10.17 Agreement with Golden Sky
23. Subsidiaries
27. Financial Data Schedule
99. Consent of Clancy and Co. P.L.L.C.
</TABLE>
* All exhibits previously filed.
III-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 26, 2000
WORLDCAST INTERACTIVE, INC.
By: /s/ AHMAD MORADI
---------------------
Ahmad Moradi,
Chief Executive Officer
III-2
