SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 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.
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(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)
None Securities to be registered under Section 12(b) of the Act:
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 26 pages
Exhibit Index begins on Page 25
Page No.
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PART 1
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Item 1. Description of Business..............................................................
Item 2. Management's Discussion and Analysis ................................................
Item 3. Description of Property..............................................................
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers and Control Persons....................................
Item 6. Executive Compensation...............................................................
Item 7. Certain Relationships and Related Transactions.......................................
Item 8. Description of Securities............................................................
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
And Other Shareholder Matters........................................................
Item 2. Legal Proceedings....................................................................
Item 3. Changes in and Disagreements with Accountants........................................
Item 4. Recent Sales of Unregistered Securities..............................................
Item 5. Indemnification of Directors and Officers............................................
PART FS
Financial Statements.................................................................
Table of Contents....................................................................
PART III
Item 1. Exhibit Index........................................................................
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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.
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,
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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.
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
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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.
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.
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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.
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
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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 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.
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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 has obtained a valid right of entry under
this agreement. WorldCast has the right to construct and operate, at its cost, a
signal distribution system in the owner's multiple housing unit. The technical
specifications of each signal distribution system must comply with DIRECTV's
specifications.
For each multiple housing unit subscriber who purchases programming
under this agreement, WorldCast will receive a percentage of net receipts
received by DIRECTV and a prepaid commission. In addition, DIRECTV will
subsidize receiver equipment used by multiple housing unit subscribers, subject
to DIRECTV's approval of the type of receiver equipment provided. WorldCast
cannot sell any DBS services other than DIRECTV services to multiple housing
unit residents. The term of this agreement is five years, to be automatically
renewed for five years unless either party elects to terminate. WorldCast has
not yet commenced its performance under the agreement pending its receipt of
necessary financial resources.
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 expires one year from the date of its execution, 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 all
WorldCast 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.
On March 1, 1999, First Capital Services restructured a $395,00 loan to
WorldCast in the form of an unsecured negotiable promissory note. The note's
effective date is January 1, 1998, bears an interest rate of 1.00% per month
simple interest, and is payable in monthly installments of $10,401.86, which
payments commenced February 1, 1999 and continue until January 1, 2003, at which
time all unpaid principal and all accrued and unpaid interest becomes due.
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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 is January 1, 1998, bears an interest rate of 1.00% per
month simple interest, and is payable in monthly installments of $4,292.42.
These payments commenced February 1, 1999 and continue until January 1, 2003, at
which time all unpaid principal and all accrued and unpaid interest becomes due.
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, 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.
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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.
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.
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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 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
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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.
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 and to refocus its sales efforts in
providing communication and data network solutions using Cisco 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
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$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.
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 504D
and bridge financing executed during the third quarter of 1998.
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, entitles 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'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.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operation contains various "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, which represent the Company's expectations or beliefs concerning
future events, including without limitation the following: changes in the
Company's sales, costs, expenses and other financial information; changes or
adjustments in the Company's downsizing plan, including without limitation the
reduction of the Company's workforce and the potential growth opportunities
through sale, installation and service of other third party products; the
Company's ability to secure additional line of credits and other sources of
financing, as well as other sources, if necessary for the Company to do so; and
the sufficiency of the Company's cash provided by some of its stockholders to
move ahead the Company toward realization of revenue provided by operation,
investing and financing activities for the Company's future liquidity and
capital resource needs.
The Company cautions that these statements are further qualified by
important factors that could cause actual to differ materially from those
contained in the forward-looking statements, including without limitation the
following; general economic conditions; specific economic conditions relating to
convergence technologies, the demand for Company's products and services; the
size and timing of the future sales and new contracts; specific features
requests by customers; production delays or manufacturing inefficiencies;
management decisions to commence or discontinue service or product lines; the
Company's ability to introduce or sell new products on a cost-effective and
timely basis; the amount of timing of research and development expenditures when
and where applicable; the maintenance of present and the availability of future
strategic alliances and joint marketing or service agreements; the introduction
of new products and product enhancements by the Company or its competitors; the
budgeting cycle of customers; the adaptation of technologies by the customers;
changes in the proportion of the revenue attributable to new and existing
products and services and maintenance and support services; changes in the level
of operating expenses; and the present and future level of competition in the
industry. As a result of these and other important factors, the results actually
achieved may differ materially from expected results included in these
statements.
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Item 3. Description of Property
Until February 15, 2000, WorldCast leased 2,300 square feet of office
space at 3835 Park Central Boulevard North in Pompano Beach, Florida. In
February, WorldCast leased an executive suite located at 20283 State Road 7,
Suite 300, Boca Raton, Florida 33498.
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
the beneficial owner of 5% or more of outstanding common stock, each of our
executive officers and directors and 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 c/o WorldCast Interactive, Inc., 20283
State Road 7, Suite 300, Boca Raton, Florida 33498.
<TABLE>
<CAPTION>
Number of
Name 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 6,632,500
(4 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
Steven Remondini President and Chairman of the Board
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
-15-
<PAGE>
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,
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.
Steven Remondini, 44 years old, served as president and chairman of the
board from May 1996 to January 1, 2000. In October 1995, Mr. Remondini
co-founded and was associated with the Satellite Source, a satellite information
technology services provider. From May 1995 to October 1995, Mr. Remondini
served as an independent consultant, providing consulting services on several
national communication networking projects. From May 1995 to August 1993, Mr.
Remondini served as director of technical services for Citrix Systems, a
software company. Mr. Remondini holds a B.S. in computer science and
telecommunications, with a minor in business administration, from Gonzaga
University.
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.
-16-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Other Compensation Annual Compensation
--------------------------- ------------------ -------------------
Year Year Salary
---- ---- ------
<S> <C> <C> <C>
Steven Remondini 1999 none 1999 $ 47,210
President 1998 none 1998 $ 65,606
1997 none 1997 $ 52,600
Dr. Ahmad Moradi 1999 none 1999 $ 45,533
Chief Executive Officer 1998 none 1998 $ 26,250
1997 none 1997 $ 0
Robert Kelner 1999 none 1999 $ 45,516
Chief Operating Officer 1998 none 1998 $ 30,000
1997 none 1997 $ 0
William Tessaro 1999 none 1999 $ 46,516
Chief Technical Officer 1998 none 1998 $ 43,465
1997 none 1997 $ 0
</TABLE>
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.
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.
-17-
<PAGE>
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 is payable interest only and balloons on August 1,
2000. Mr. Tessaro has verbally agreed to convert the outstanding amount of the
loan into shares of WorldCast common stock. As of this date, however, the
agreement has not been finalized.
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.
-18-
<PAGE>
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 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.
-19-
<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.
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 will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
-20-
<PAGE>
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, 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.
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.
-21-
<PAGE>
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.
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
-22-
<PAGE>
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 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.
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
-23-
<PAGE>
competence, or (3) in the case of a director, 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.
-24-
<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
PAGE
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT
---------------------
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
Board of Directors and Stockholders
WorldCast Interactive, Inc.
We have audited the accompanying consolidated balance sheets of WorldCast
Interactive, Inc. (the "Company") as of December 31, 1998, and the related
statements of operations, stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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
misstatements. 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 provide 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. as
of December 31, 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 $1,904,362 for the year ended December 31,
1998, as of this date, the Company's liabilities exceed its assets by
$1,073,800. These factors raise substantial doubt about the Company's 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
February 26, 1999 (except for Note M, as
to which the date is March 15, 1999)
F-2
<PAGE>
WorldCast Interactive, Inc.
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
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-3
<PAGE>
WorldCast Interactive, Inc.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
<CAPTION>
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-4
<PAGE>
WorldCast Interactive, Inc.
STATEMENT OF SHAREHOLDERS' DEFICIT
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Notes
----------------------------- Paid-in Receivable Accumulated
Shares Amount Capital Shareholders 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 these statements.
F-5
<PAGE>
WorldCast Interactive, Inc.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
<CAPTION>
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 note 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
================= ===============
</TABLE>
(continued)
F-6
<PAGE>
WorldCast Interactive, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31,
<TABLE>
<CAPTION>
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-7
<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-8
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
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.
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.
(continued)
F-9
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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.
F-10
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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)
------------- -------------
$ - $ -
============= =============
</TABLE>
(continued)
F-11
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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
</TABLE>
(continued)
F-12
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - NOTES PAYABLE - Continued
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
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 note 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-13
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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-14
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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-15
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 principle 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-16
<PAGE>
WorldCast Interactive, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE O - WARRANTS
In connection with the Bridge Financing between the Company, Celebrity
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-17
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
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>
* Filed herein.
-25-
<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: April 28, 2000
WORLDCAST INTERACTIVE, INC.
By: /s/ AHMAD MORADI
-----------------
Ahmad Moradi,
Chief Executive Officer
-26-
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
GOLDEN SKY SYSTEMS, INC.
AND
FUTURETRAK INTERNATIONAL, INC.
DATED AS OF
AUGUST ___, 1999
================================================================================
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement ("Agreement") is made and entered into as
of this ___ day of August, 1999, by and between Golden Sky Systems, Inc., a
Delaware corporation, its successors or assigns (collectively, "Seller"), and
FutureTrak International, Inc., a Florida corporation ("Buyer").
Recitals:
Buyer desires to purchase, and Seller desires to sell, certain of
Seller's assets related to the Master System Operator Agreement (defined below)
which concerns, among other things, Seller's multiple-dwelling unit division.
Agreement
In consideration of the above recitals and the mutual agreements stated
in this Agreement, the parties intending to be legally bound, agree as follows:
Section 1. Definitions.
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms, when used in this Agreement, will have the meanings set forth
below:
1.1 Accounts Receivable. The accounts receivable of Seller exclusively
related to the Business as set forth on Schedule 1.1.
1.2 Affiliate. With respect to any Person, any other Person
controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.3 Assets. The Accounts Receivable, Equipment, Intangibles, and Seller
Contracts, but excluding all Excluded Assets.
1.4 Business. The business of Seller solely relating to providing
Programming Services to multiple-dwelling units as contemplated under and in
accordance with the Master System Operator Agreement.
1.5 Business Day. Any day other than Saturday, Sunday or a day on which
banking institutions in New York, New York or Kansas City, Missouri are required
or authorized to be closed.
1.6 Closing; Closing Date. The consummation of the transactions
contemplated by this Agreement, as described in Section 8, is referred to as the
Closing, and the date thereof is referred to as the Closing Date.
1
<PAGE>
1.7 Encumbrance. Any mortgage, lien, security interest, security
agreement, conditional sale or other title retention agreement, limitation,
pledge, option, assessment or other such charge, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer, or
exception to or defect in title or other ownership interest (including
reservations, rights of way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses), other
than the Permitted Encumbrances.
1.8 Equipment. The product demonstration equipment, office equipment,
and other tangible personal property exclusively owned, leased, used or held for
use by Seller for the Business as set forth on Schedule 1.8 hereto.
1.9 Excluded Assets. Any and all right, title and interest of Seller in
and to any and all assets that are not otherwise defined as Assets pursuant to
Section 1.4.
1.10 FTS Stock. The number of shares of common stock of
[____________________] traded on the NASDAQ exchange that has a dollar value
equal to the total amount of principal and interest that is projected to be paid
by Buyer over the term of the Promissory Note (defined below). For purposes of
determining the dollar value of the FTS Stock, its per share price shall be
equal to the average closing price of a share of common stock of
____________________ as reported by the NASDAQ exchange for ten (10) consecutive
trading days with the last such trading day being the trading day that is three
(3) trading days prior to the Closing Date.
1.11 Governmental Authority. (i) The United States of America, (ii) any
state, commonwealth, territory or possession of the United States of America and
any political subdivision thereof (including counties, municipalities and the
like), or (iii) any agency, authority or instrumentality of any of the
foregoing, including any court, tribunal, department, bureau, commission or
board.
1.12 Intangibles. The intangible assets of Seller used exclusively in
the Business as set forth on Schedule 1.12.
1.13 Legal Requirement. Any statute, ordinance, code, law, rule,
regulation, order or other requirement, standard or procedure enacted, adopted
or applied by any Governmental Authority, including judicial decisions applying
common law or interpreting any other Legal Requirement.
1.14 Master System Operator Agreement. That certain DIRECTV MDU Master
System Operator Agreement dated December 30, 1997, by and between Seller and
DIRECTV, Inc.
1.15 Permitted Encumbrances. The following Encumbrances: (a) liens for
taxes, assessments and governmental charges not yet due and payable; and (b)
zoning laws and ordinances and similar Legal Requirements.
1.16 Person. Any natural person, corporation, partnership, trust,
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
2
<PAGE>
1.17 Programming Services. One or more tiers of subscription DIRECTV(R)
(as defined herein) satellite programming sold to Subscribers for which a
Subscriber pays a fixed monthly fee and including pay per view events and ala
carte programming services and specifically excluding equipment leasing revenues
and financing.
1.18 Required Consents. All licenses, authorizations, approvals and
consents required under Seller Contracts or otherwise for (a) Seller to transfer
the Assets to Buyer and (b) Buyer to own, lease, use and operate the Assets on
the Closing Date.
1.19 Seller Contracts. All contracts and agreements, oral or written,
exclusively pertaining to the ownership, operation and maintenance of the Assets
or Business in which Seller has any right, title or interest, as set forth on
Schedule 1.18 hereto.
1.20 Subscribers. Current or pending subscribers to Programming
Services provided by Seller exclusively related to the Business pursuant to the
Master System Operator Agreement.
Section 2. Sale of Assets
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller will sell to
Buyer, and Buyer will purchase from Seller, all of Seller's rights, title and
interest in, to and under the Assets, free and clear of any mortgage, lien,
security interest, security agreement, conditional sale or other title retention
agreement, limitation, pledge, option, restriction, Encumbrance, or exception to
or defect in title, other than Permitted Encumbrances.
Section 3. Consideration
3.1 Buyer Deposit. Prior to or within five (5) Business Days after
execution of this Agreement and subject to the terms of the "Earnest Money
Escrow Agreement" attached hereto as Exhibit A, Buyer will deliver to Commerce
Bank, N.A. (the "Escrow Agent") the sum of Forty Three Thousand Dollars
($43,000), which amount, together with all interest earned thereon, shall be
referred to herein as the "Buyer Deposit". The Buyer Deposit shall be held by
the Escrow Agent pursuant to the Earnest Money Escrow Agreement. If the purchase
of the Assets under this Agreement is not consummated on or prior to the Closing
Deadline as a result of a breach by Buyer of any of its obligations under this
Agreement, Seller shall be entitled to the Buyer Deposit. The payment of the
Buyer Deposit by the Escrow Agent to Seller, and Seller's receipt thereof, shall
be in addition to any other remedies accruing to Seller as a result of breach by
Buyer of any of its obligations under this Agreement. Seller specifically
acknowledges that it will not be entitled to any of the Buyer Deposit in the
event the purchase of the Assets under this Agreement is not consummated due to
the refusal by DIRECTV, Inc., successor-in-interest to Hughes Communications
Galaxy, Inc., (herein, "DIRECTV(R)") to approve the transfer of the Master
System Operator Agreement to Buyer.
3.2 Base Purchase Price. Buyer will pay to Seller the total
consideration of Eight Hundred Sixty Thousand Dollars ($860,000) (the "Purchase
Price"), to be paid by the Buyer at the Closing as follows: (a) Three Hundred
Ten Thousand Dollars ($310,000) in cash or wire transfer of immediately
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available funds, and (b) a promissory note payable by Buyer to Seller in the
principal amount of Five Hundred Fifty Thousand Dollars ($550,000) (the
"Promissory Note"). The Promissory Note shall have an annual interest rate equal
to the Prime Rate (as defined herein) plus 1%, adjusted as and when changes in
the Prime Rate are made. The principal amount of the Promissory Note and
interest thereon shall be due and payable over 36 months in equal monthly
installments commencing on the first day of the month immediately following the
Closing Date. Buyer's obligations under the Promissory Note shall be secured by
a pledge of the FTS Stock to Seller. Buyer's pledge of the stock shall be
evidenced by its execution and delivery to Seller at Closing of the Pledge
Agreement attached hereto as Exhibit B.
Section 4. Assumed Liabilities.
4.1 Assignment and Assumption. Seller will transfer and assign, and
Buyer will assume and perform, the Assumed Liabilities, which are defined as:
(a) Seller's obligations to Subscribers for (i) subscriber deposits held by
Seller as of the Closing Date and which are refundable (ii) subscriber advance
payments held by Seller as of the Closing Date for services to be rendered after
the Closing Date; and (b) obligations accruing and relating to periods after the
Closing Date under Seller Contracts. Buyer will not assume, or have any
responsibility for any liabilities or obligations of Seller other than the
Assumed Liabilities.
Section 5. Representations and Warranties of Seller.
Seller represents and warrants to Buyer, as of the date of this
Agreement and as of the Closing:
5.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 Qualification. Seller has all requisite power and authority to own,
lease and use the Assets as they are currently owned, leased and used.
5.3 Authority and Validity. Seller has all requisite corporate power
and authority to execute and deliver, to perform its respective obligations
under, and to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance by Seller of its obligations under, and the
consummation by Seller of the transactions contemplated by, this Agreement have
been duly authorized by all requisite corporate action of Seller, and this
Agreement constitutes a valid and binding obligation of Seller, enforceable in
accordance with its terms.
5.4 No Breach or Violation. Subject to obtaining the Required Consents,
the execution, delivery and performance of this Agreement by Seller will not (a)
violate any provision of its organization documents; (b) materially violate any
Legal Requirement; (c) require any consent, approval or authorization of, or any
filing with or notice to, any Person which has not been obtained, or (d) (i)
materially violate, conflict with or constitute a breach of or default under
(without regard to requirements of notice, passage of time or elections of any
Person), (ii) permit or result in the termination, suspension or modification
of, (iii) result in the acceleration of (or give any person the right to
accelerate) the performance of Seller under, or (iv) result in the creation or
imposition of any Encumbrance under, any Seller Contract or any other instrument
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evidencing any of the Assets or any instrument or other agreement to which it is
a party or by which it or any of its assets is bound or affected.
5.5 Assets. Seller has exclusive, good and marketable title to (or in
the case of Assets that are leased, valid leasehold interests in) the Assets.
The Assets are free and clear of all Encumbrances of any kind or nature, except
(a) Permitted Encumbrances, (b) restrictions stated in the Seller Contracts and
(c) Encumbrances disclosed on Schedule 5.5 hereto which will be removed or
otherwise released of record effective at or prior to the Closing, or for which
executed releases in form appropriate for filing by, and in form acceptable to,
Buyer will be delivered to Buyer at Closing.
5.6 Compliance with Laws. The ownership, leasing and use of the Assets
as they are currently owned, leased and used by Seller do not violate any Legal
Requirement, which violation, individually or in the aggregate, would have a
material adverse effect on the Business. Seller has not received any notice
claiming a material violation by it or the Business of any Legal Requirement
applicable to it or the Business as it is currently conducted.
5.7 Legal Proceedings. Except as set forth on Schedule 5.7 hereto,
there is no judgment or order outstanding, or any action, suit, complaint,
proceeding or investigation by or before any Governmental Authority or any
arbitrator pending or, to the actual knowledge of Seller, threatened, which
could have a materially adverse affect on the Assets or the Business.
5.8 Seller Contracts. Schedule 1.19 hereto contains a complete and
accurate list, and Seller has delivered to Buyer true and complete copies, of
all Seller Contracts. Except as set forth in Schedule 1.19: (i) each Seller
Contract is in full force and effect and is valid and enforceable in accordance
with its terms; (ii) Seller is, and at all times has been, in material
compliance with all applicable terms and requirements of each Seller Contract
under which Seller has or had any obligation or liability or by which Seller or
any of the Assets is or was bound; and (iii) no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a material violation or breach of, or
give Seller or other Person the right to declare a material default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Seller Contract. The Master System Operator Agreement
is in full force and effect with no material defaults thereunder.
5.9 Disclosure. No representation or warranty by Seller in this
Agreement or Exhibit to this Agreement, or any statement or certificate
furnished or to be furnished by Seller pursuant to this Agreement, contains or
will contain any untrue statement of material fact, or omits or will omit any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in which made.
Section 6. Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as of the date of this
Agreement and as of the Closing, as follows:
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6.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Florida and
has all requisite corporate power and authority to carry on its business as
currently conducted and to own, lease, use and operate its assets.
6.2 Authority and Validity. Buyer has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. The execution and
delivery by Buyer of, the performance by Buyer of its obligations under, and the
consummation by Buyer of the transactions contemplated by, this Agreement have
been duly authorized by all requisite corporate action of Buyer, including,
without limitation, approval by the Board of Directors of Buyer. This Agreement
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms.
6.3 No Breach or Violation. Subject to obtaining the Required Consents,
the execution, delivery and performance of this Agreement by Buyer will not: (a)
violate any provision of the charter or bylaws of Buyer; (b) violate any Legal
Requirement; (c) require any consent, approval or authorization of, or any
filing with or notice to, any Person, which has not been obtained or (d) (i)
violate, conflict with or constitute a breach of or default under (without
regard to requirements of notice, passage of time or elections of any Person),
(ii) permit or result in the termination, suspension or modification of (iii)
result in the acceleration of (or give any Person the right to accelerate) the
performance of Buyer under, or (iv) result in the creation or imposition of any
Encumbrance under, any instrument or other agreement to which Buyer is a party
or by which Buyer or any of its assets is bound or affected.
6.4 SEC Reports; Disclosure. Buyer has filed with the Securities and
Exchange Commission ("SEC") all forms, proxy statements, reports and other
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended ("1933 Act") and the Securities Exchange Act
of 1934, as amended ("1934 Act") and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate law
and rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made and at the time they were made, not misleading.
6.5 FTS Stock. [Old version (which one?).]
6.6 Disclosure. No representation or warranty by Buyer in this
Agreement or Exhibit to this Agreement, or any statement or certificate
furnished or to be furnished by Buyer pursuant to this Agreement, contains or
will contain any untrue statement of material fact, or omits or will omit any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in which made.
Section 7. Additional Covenants.
7.1 Access to Premises and Records. Between the date of this Agreement
and the Closing Date, and upon not less than 48 hours' notice, Seller will give
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Buyer and its representatives full access at reasonable times to all the
premises and books and records of the Business and to all the Assets which are
under the control of Seller and will furnish to Buyer and its representatives
all information regarding the Business and the Assets as Buyer may from time to
time reasonably request. Seller agrees it, its officers and employees will
cooperate with and assist Buyer in its reasonable requests for information.
7.2 Leased Equipment. Seller will pay the remaining balances on any
leases for Equipment used in the Business, if any, and deliver title to such
Equipment free and clear of all Encumbrances to Buyer at the Closing.
7.2.1 Required Consents. Seller and Buyer agree to use their
best efforts to obtain all Required Consents, but Buyer will not be
required to agree to any material adverse changes in, or the imposition
of any material adverse condition upon the transfer to Buyer of any
Seller Contract as a condition to obtaining any Required Consent.
Seller will use its best efforts to obtain, at its expense, such
estoppel certificates or similar documents from lessors and other
Persons who are parties to Seller Contracts as Buyer may reasonably
request.
7.3 Notification of Certain Matters. Seller will promptly notify Buyer
of any fact, event, circumstance or action (a) which, if known to Seller on the
date of this Agreement, would have been required to be disclosed by Seller to
Buyer pursuant to this Agreement, or (b) the existence or occurrence of which
would cause any of Seller's representations or warranties under this Agreement
not to be materially correct; and Buyer will promptly notify Seller of any fact,
event, circumstance or action (a) which, if known to Buyer on the date of this
Agreement, would have been required to be disclosed by Buyer to Seller pursuant
to this Agreement, or (b) the existence or occurrence of which would cause any
of Buyer's representations or warranties under this Agreement not to be
materially correct.
7.4 Transfer Taxes. In the event that any Governmental Authority shall
at any time impose or otherwise require or demand payment by or from either
Seller or Buyer of any state or local sales, use, transfer, excise, documentary
or license taxes or fees or any other charge (including filing fees) with
respect to Seller's sale or transfer to Buyer of the Assets, Seller and Buyer
shall share equally the responsibility for payment of such amounts.
7.5 Updated Schedules. Not less than three (3) business days prior to
Closing, Seller will deliver to Buyer revised copies of Schedules which shall
have been updated to show any changes occurring between the date of this
Agreement and the date of delivery; provided, however, that if the effect of any
such updates to Schedules is to disclose any one or more additional properties,
privileges, rights, interests or claims as Assets, or disclose previously
undisclosed liabilities, Buyer, at or before Closing, will have the right (to be
exercised by notice to Seller) to cause any one or more of such items to be
designated as and deemed to constitute Excluded Assets for all purposes under
this Agreement.
7.6 Satisfaction of Conditions. Each party will use its reasonable best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 9, provided that Buyer will not be
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required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect any of the
Assets or Assumed Liabilities.
7.7 Confidentiality. No party, nor their respective officers,
employees, trustees, agents, representatives or affiliates, will issue any press
release or make any other public announcement regarding this Agreement or the
transactions contemplated hereby without the consent of the other parties. Each
party will hold, and will cause its employees, consultants, advisors and agents
to hold, in confidence, the terms of this Agreement and any non-public
information concerning the other party obtained pursuant to this Agreement.
Notwithstanding the preceding, a party may disclose such information to the
extent required by any Legal Requirement (including disclosure requirements
under federal and state securities laws), but the party proposing to disclose
such information will first notify and consult with the other party concerning
the proposed disclosure, to the extent reasonably feasible. Each party also may
disclose such information to employees, consultants, advisors, agents and actual
or potential lenders whose knowledge is necessary to facilitate the consummation
of the transactions contemplated by this Agreement. Each party's obligation to
hold information in confidence will be satisfied if it exercises the same care
with respect to such information as it would exercise to preserve the
confidentiality of its own similar information.
7.8 Employment Matters. Seller shall not preclude Buyer from attempting
to negotiate employment relationships with employees of Seller who are involved
in the Business.
7.9 Transition. Seller shall cooperate in good faith with Buyer to
assure a smooth transition of the Assets and operation of the Business after
Closing.
7.10 Buyer's Reimbursement. At Closing, Buyer shall reimburse Seller
for all costs and expenses incurred by Seller in operating the Business from
_______, 1999 to the Closing Date which are related to those actions that Seller
performs at the request of Buyer. Buyer's reimbursement of such costs shall be
due and payable to Seller at Closing in cash or by wire transfer of immediately
available funds.
Section 8. Closing.
8.1 Time and Place of Closing. Subject to satisfaction or waiver of all
conditions precedent under this Agreement, the date of Closing ("Closing Date")
shall be a date, as designated by Seller in writing, that is not earlier than
three (3) and no later than seven (7) days after the later of the following: (i)
thirty (30) days after the effective date of the merger involving Buyer and
Celerity Systems, Inc., or (ii) Seller's receipt of all Required Consents. The
Closing will be held in the offices of Polsinelli, White, Vardeman & Shalton,
P.C. at 700 West 47th Street, Suite 1000, Kansas City, Missouri or such other
place as Buyer and Seller may agree.
Section 9. Conditions to Closing.
9.1 Conditions to the Obligations of Buyer and Seller. The obligations
of each party to consummate the transactions contemplated by this Agreement to
take place at the Closing are subject to the satisfaction or waiver to the
extent permitted by applicable Legal Requirements, at or prior to the Closing
Date, of each of the following conditions:
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9.1.1 No action, suit or proceeding is pending or threatened by or
before any Governmental Authority and no Legal Requirement has been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by a Governmental Authority, which would (a)
prohibit Seller's transfer of the Asset, (b) prohibit Buyer's ownership of the
Business or the Assets, (c) compel Buyer to dispose of or hold separate all or a
material portion of the Business or the Assets as a result of any of the
transactions contemplated by this Agreement, or (d) prevent or make illegal the
consummation of any transactions contemplated by this Agreement.
9.2 Conditions to the Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver, to the extent permitted by
applicable Legal Requirements, at or prior to the Closing Date, of each of the
following conditions:
9.2.1 All representations and warranties of Seller contained in this
Agreement are, if not specifically qualified by materiality, true in all
respects and, if so qualified, are true in all material respects, in each case
on and as of the Closing Date with the same effect as if made on and as of the
Closing Date, except for changes specifically permitted or contemplated by this
Agreement.
9.2.2 Seller has performed and complied in all material respects with
each obligation, agreement, covenant and condition required by this Agreement to
be performed or complied with by Seller at or prior to the Closing.
9.2.3 Seller has executed (or caused to be executed) and delivered to
Buyer each of the following items:
(a) the Earnest Money Escrow Agreement in the form attached hereto as
Exhibit A;
(b) the Bill of Sale substantially in the form attached hereto as
Exhibit C;
(c) the Assignment and Assumption of Contracts Agreement substantially
in the form attached hereto as Exhibit D;
(d) a certificate of good standing for Seller from the Delaware
Secretary of State;
(e) such other transfer instruments as Buyer may reasonably deem
necessary or advisable to transfer the Assets to Buyer and to perfect Buyer's
rights in the Assets.
9.2.4 Seller has delivered to Buyer evidence, in form and substance
satisfactory to Buyer, that all of the Required Consents have been obtained or
given and are in full force and effect.
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9.2.5 No action, proceeding or investigation has been instituted or
threatened prior to Closing by or before any court or Governmental Authority
which would, if determined adversely to Buyer's interest, materially impair the
ability of Buyer to realize the benefits of the transactions contemplated by
this Agreement. In addition, there shall not have been any material adverse
change in the Business or Assets. Nothing in this Section shall be construed so
as to give Buyer any unfair option to delay or avoid closing on this transaction
and in any event, there must be a reasonable basis supported by fact to invoke
the protection of this provision.
9.2.6 Seller has delivered documentation to Buyer evidencing the
release or termination of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances).
9.2.7 Seller has delivered to Buyer: (a) a certificate, dated the
Closing Date, signed by Seller's chief executive officer or President, stating
that to the best of his knowledge in his corporate capacity the conditions set
forth in Sections 9.2.1 and 9.2.2 are satisfied; and (b) a copy of the
resolutions of the board of directors of Seller authorizing the execution,
delivery and performance of this Agreement by Seller, and a certificate of
Seller, dated as of the Closing, that such resolutions were duly adopted and are
in full force and effect as of the date of Closing.
9.3 Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver by Seller, to the extent
permitted by applicable Legal Requirement, at or prior to the Closing Date, of
each of the following conditions:
9.3.1 Buyer has paid the Purchase Price required to be paid at the
Closing.
9.3.2 All representations and warranties of Buyer contained in this
Agreement are, if not specifically qualified by materiality, true and correct in
all respects and, if so qualified, are true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, except for changes specifically permitted or
contemplated by this Agreement.
9.3.3 Buyer in all material respects has performed and complied with
each obligation, agreement, covenant and condition required by this Agreement to
be performed or complied with by Buyer at or prior to the Closing.
9.3.4 Buyer has executed and delivered to Seller each of the following
items:
(a) the Earnest Money Escrow Agreement in the form attached hereto as
Exhibit A;
(b) the Pledge Agreement in the form attached hereto as Exhibit B;
(c) the Assignment and Assumption of Contracts Agreement substantially
in the form attached hereto as Exhibit D; and
9.3.5 Buyer has delivered to Seller the following: (a) a certificate,
dated the Closing Date, signed by the chief executive officer or President of
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Buyer, stating that to the best of his knowledge in his corporate capacity, the
conditions set forth in Sections 9.3.2 and 9.3.3 are satisfied; and (b) a copy
of the resolutions of the board of directors of Buyer authorizing the execution,
delivery and performance of this Agreement by Buyer, and a certificate of Buyer,
dated as of the Closing, that such resolutions were duly adopted and are in full
force and effect as of the date of Closing.
9.4 Waiver of Conditions. Any party may waive in writing any or all of
the conditions to its obligations under this Agreement.
Section 10. Termination.
10.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing:
(a) by the mutual written consent of Buyer and Seller; or
(b) by Buyer or Seller, if the transactions contemplated by
this Agreement to take place at the Closing have not been consummated
on or before ____________________ (the "Closing Deadline"); provided,
however, that if the failure to consummate the transactions is the
result of (i) a breach or default by such party in the performance of
any of its obligations under this Agreement or (ii) the failure of any
representation or warranty of such party to be accurate, the
termination of this Agreement shall not limit the right of the other
party to pursue an action for damages resulting from such breach or
failure, except that Buyer and Seller will have no liability in any
event if, for any reason whatsoever, DIRECTV(R)does not approve
transfer to Buyer of the Master System Operator Agreement.
10.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement.
10.3 Procedure Upon Termination. In the event of the termination of
this Agreement by Buyer or Seller pursuant to this Section 10, written notice of
such termination will promptly be given by the terminating party to the other.
Section 11. Survival of Representations and Warranties; Indemnification.
11.1 Survival of Representations and Warranties. The representations
and warranties of Seller and Buyer in this Agreement and in the documents and
instruments to be delivered by Seller pursuant to this Agreement will survive
the Closing without limitation until the first anniversary of the Closing Date.
The periods of survival of the representations and warranties prescribed by this
Section 11.1 are referred to as the "Survival Period". The liabilities of the
parties under their respective representations and warranties will expire as of
the expiration of the applicable Survival Period; provided, however, that such
expiration will not include, extend or apply to any representation or warranty,
the breach of which has been asserted by Buyer or Seller in written notice to
Seller before such expiration or about which Seller has given Buyer written
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notice before such expiration indicating the facts or conditions existing that,
with the passage of time or otherwise, can reasonably be expected to result in a
breach (and describing such potential breach in reasonable detail).
11.2 Indemnification by Seller. Seller will indemnify, defend and hold
harmless Buyer and its shareholders and its and their respective Affiliates, and
the shareholders, directors, officers, employees, agents, successors and assigns
of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to Buyer resulting from or arising out of (i) any
material breach of any then surviving representation or warranty made
by Seller in this Agreement, (ii) any material breach of any other
servicing covenant, agreement or obligation of Seller contained in this
Agreement, (iii) any third party claim with respect to any act or
omission of Seller with respect to Seller's operation of the Assets or
Seller's conduct of the Business, which act or omission occurred prior
to the Closing Date without regard to whether such third party claim
with respect to such act or omission is asserted before or after the
Closing Date, (iv) any liability or obligation of Seller not included
in the Assumed Liabilities; and (v) any claim relating in any manner to
the operation of the Business prior to and on the Closing Date; and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or
relating to or resulting from any of the foregoing.
11.3 Indemnification by Buyer. Buyer will indemnify, defend and hold
harmless Seller and its shareholders and its and their respective Affiliates,
and the shareholders, directors, officers, employees, agents, successors and
assigns of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to Seller or any such other indemnified Person
resulting from or arising out of (i) any material breach of any then
surviving representation or warranty made by Buyer in this Agreement,
(ii) the material breach of any then surviving covenant, agreement or
obligation of Buyer contained in this Agreement or (iii) the failure by
Buyer to perform any of its obligations in respect of the Assumed
Liabilities; and (iv) any third party claim with respect to any act or
omission of Buyer with respect to Buyer's operation of the Assets or
Buyer's conduct of the Business, which act or omission occurred on and
after the Closing Date; and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or
relating to or resulting from any of the foregoing.
11.4 Third Party Claims. Promptly (and in any event within 30 days)
after the receipt by any party of notice of any claim, action, suit or
proceeding by any Person who is not a party to this Agreement (collectively, an
"Action"), which Action is subject to indemnification under this Agreement, such
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party (the "Indemnified Party") will give reasonable written notice to the party
from whom indemnification is claimed (the "Indemnifying Party"). The Indemnified
Party will be entitled, at the sole expense and liability of the Indemnifying
Party, to exercise full control of the defense, compromise or settlement of any
such Action unless the Indemnifying Party, within a reasonable time (and in any
event within 30 days) after the giving of such notice by the Indemnified Party,
(a) admits in writing to the Indemnified Party the Indemnifying Party's
liability to the Indemnified Party for such Action under the terms of this
Section 11, (b) notifies the Indemnified Party in writing of the Indemnifying
Party's intention to assume such defense, (c) provides evidence reasonably
satisfactory to the Indemnified Party of the Indemnifying Party's ability to pay
the amount, if any, for which the Indemnified Party may be liable as a result of
such Action, and (d) retains legal counsel reasonably satisfactory to the
Indemnified Party to conduct the defense of such Action. The other party will
cooperate with the party assuming the defense, compromise or settlement of any
such Action in accordance with this Agreement in any reasonable manner. The
Indemnified Party will have the right to employ separate counsel and to
participate in (but not control) the defense, compromise or settlement of the
Action, but the fees and expenses of such counsel will be at the expense of the
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses, (ii) any relief other than the payment of money damages is sought
against the Indemnified Party or (iii) the Indemnified Party will have been
advised by its counsel that there may be one or more defenses available to it
which are different from or additional to those available to the Indemnifying
Party, and in any such case that portion of the fees and expenses of such
separate counsel that are reasonably related to matters covered by the indemnity
provided in this Section 11 will be paid by the Indemnifying Party. No
Indemnified Party will settle or compromise any such Action for which it is
entitled to indemnification under this Agreement without prior written consent
of the Indemnifying Party, unless the Indemnifying Party has failed, after
reasonable notice, to undertake control of such Action in the manner provided in
this Section 11.4. No Indemnifying Party will settle or compromise any such
Action (A) in which any relief other than the payment of money damages is sought
against any Indemnified Party or (B) in the case of any Action relating to the
Indemnified Party's liability for any tax, if the effect of such settlement
would be an increase in the liability of the Indemnified Party for the payment
of any tax for any period beginning after the Closing Date, unless the
Indemnified Party consents in writing to such compromise or settlement.
Section 12. Miscellaneous.
12.1 Parties Obligated and Benefited. Subject to the limitations set
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the Buyer, Seller will not
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement.
12.2 Notices. Any notice, request, demand, waiver or other
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or sent by first class, prepaid, registered or certified mail (return receipt
requested), or delivered by commercial courier (e.g., United Parcel Service or
Federal Express) or, if receipt is confirmed, by telecopier:
13
<PAGE>
To Seller at: Golden Sky Systems, Inc.
4700 Belleview, Suite 300
Kansas City, MO 64112
Attention: Rodney A. Weary, President and
Jo Ellen Linn, Corporate Counsel
Telephone: (816) 753-5544
Telecopy: (816) 753-5595
With a copy (which will not constitute notice) transmitted by
telecopier to:
Polsinelli, White, Vardeman & Shalton, P.C.
700 West 47th Street, Suite 1000
Kansas City, MO 64112
Attention: Gerald W. Brenneman, Esq. and
Edward N. Foster, Esq.
Telephone: (816) 753-1000
Telecopy: (816) 753-1536
To Buyer at:
FutureTrak International, Inc.
3655 Park Central Blvd. North
Pompano Beach, FL 33064
Attention: ____________________
Telephone: (954) 971-2244
Telecopy: (954) 971-2228
With a copy (which will not constitute notice) transmitted by
telecopier to:
_____________________
_____________________
_____________________
_____________________
Attention: _____________________
Telephone: _____________________
Telecopy: _____________________
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 12.2. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
14
<PAGE>
12.3 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any alleged breach by any party of any representation, warranty,
covenant or agreement contained in this Agreement, the prevailing party will be
entitled to recover reasonable attorneys' fees and other costs of such action or
suit from the other party.
12.4 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.5 Captions. The article and section captions of this Agreement are
for convenience only and do not constitute a part of this Agreement.
12.6 Choice of Law. This Agreement and the rights of the parties under
it will be governed and construed in all respects in accordance with the laws of
the State of Missouri. The appropriate jurisdiction and venue in connection with
the interpretation of any disputes concerning this Agreement will be in the
Circuit Court of Jackson County, Missouri. Seller hereby waives any and all
right(s) to remove any dispute concerning this Agreement to Federal Court.
12.7 Terms. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than a limiting sense.
12.8 Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.9 Further Actions. Seller and Buyer will execute and deliver to the
other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents, assurances
or things as may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights accorded and
acquired by it under this Agreement.
12.10 Time. Time is of the essence under this Agreement. If the last
day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
12.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original.
15
<PAGE>
12.12 Entire Agreement. This Agreement (including the Schedules and
Exhibits referred to in this Agreement, which are incorporated in and constitute
a part of this Agreement) contains the entire agreement of the parties and
supersedes all prior oral or written agreements and understandings with respect
to the subject matter herein. In that regard, this Agreement is intended to and
does supersede and replace entirely any and all prior correspondence regarding
the transaction between the Buyer and Seller. This Agreement may not be amended
or modified except by a writing signed by the parties.
12.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefited by such provision or any other provisions
of this Agreement.
12.14 Construction. This Agreement has been negotiated by Buyer and
Seller and its respective legal counsel, and legal or equitable principles that
might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
12.15 Late Payments. If either party fails to pay the other any amounts
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the annual rate publicly announced from time to
time by Citibank, N.A. at its prime rate (the "Prime Rate") plus 3%, adjusted as
and when changes in the Prime Rate are made.
12.16 Expenses. Except as otherwise expressly provided in this
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
16
<PAGE>
The parties have executed this Agreement as of the day and year first
above written.
BUYER:
FutureTrak International, Inc.
By:_________________________________
Name:_______________________________
Title:______________________________
SELLER:
Golden Sky Systems, Inc.
By:_________________________________
Rodney A. Weary, President
17
<PAGE>
EXHIBIT LIST
------------
Exhibit A Earnest Money Escrow Agreement
Exhibit B Pledge Agreement
Exhibit C Bill of Sale
Exhibit D Assignment and Assumption of Contracts Agreement
18
<PAGE>
LIST OF SCHEDULES
-----------------
1.1 Accounts Receivable
1.18 Equipment
1.12 Intangibles
1.19 Seller Contracts
5.5 Encumbrances
5.7 Legal Proceedings
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,017
<SECURITIES> 0
<RECEIVABLES> 2,255
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,272
<PP&E> 130,207
<DEPRECIATION> (78,276)
<TOTAL-ASSETS> 55,203
<CURRENT-LIABILITIES> 4,129,307
<BONDS> 0
0
0
<COMMON> 37,925
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 55,203
<SALES> 132,503
<TOTAL-REVENUES> 132,503
<CGS> 667,858
<TOTAL-COSTS> 3,173,650
<OTHER-EXPENSES> (520)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,656
<INCOME-PRETAX> (3,894,141)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,894,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,894,141)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
April 27, 2000
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549
Dear Sirs:
We have read Item 3 of Amendment 1 to Form 10-SB of WorldCast Interactive, Inc.
(formerly known as FutureTrak International, Inc.), and are in agreement with
the statements contained therein. We have no basis to disagree with other
statements of the registrant contained therein.
Sincerely,
Clancy & Co., PLLC
