UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number: 0-30211
MINDFULEYE, INC.
--------------------------------------------------------------
(formerly, RABATCO, INC.)
(Exact name of registrant as specified in its charter)
Nevada 87-0616344
------------------------ -----------------------------
(Place of Incorporation) (IRS Employer ID Number)
Suite 300- 355 Burrard St. Vancouver, British Columbia V6C 2G6
--------------------------------------------------------------
(Address of registrant's principal executive office)
604-638-6800
--------------------------------------------------------------
(Registrant's telephone number)
Rabatco, Inc.
114 W. Magnolia Street. Suite 400-117
Bellingham, Washington 98225
-------------------------------------------------------------------
(Former name or address, if changed since last report)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of Shares of Common Stock, $0.001 Par Value, Outstanding at June 30,
2000: 13,815,000
<PAGE>
MINDFULEYE, INC.
For the Quarter Ended
June 30, 2000
INDEX TO FORM 10-QSB
<TABLE>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION.............................................................1
Item 1. Financial Statements:..............................................................1
Consolidated Balance Sheets:
- December 31, 1999 and June 30, 2000.............................................1
Consolidated Statements of Operations:
- For the Six Months and Three Months Ended June 30, 2000..........................2
Consolidated Statements of Comprehensive Loss
- For the Six Months and Three Months Ended June 30, 2000..........................3
Consolidated Statements of Cash Flow
- For the Six Months and Three Months Ended June 30, 2000..........................4
Consolidated Statements of Stockholders Equity
- For the Three Months Ended June 30, 2000.........................................5
Notes to Financial Statements .............................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................................18
ITEM 2. CHANGES IN SECURITIES .........................................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................19
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS..............................19
ITEM 5. OTHER INFORMATION..............................................................19
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K...............................................19
SIGNATURES................................................................................20
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)
<TABLE>
=============================================================================================================================
June 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,018,468 $ 6,520
Accounts receivable 24,417 1,661
Prepaid expenses 8,893 -
--------------- -------------
Total current assets 1,051,778 8,181
Capital assets (Note 4) 209,844 23,662
--------------- --------------
$ 1,261,622 $ 31,843
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 39,563 $ 18,740
--------------- --------------
Total current liabilities 39,563 18,740
Long-term debt (Note 5) $ - 214,093
--------------- --------------
39,563 232,833
--------------- --------------
STOCKHOLDERS' EQUITY
Capital stock (Note 8)
Authorized
100,000,000 common shares with a par value of $0.001
Issued and outstanding
March 31, 2000 - 13,815,000 common shares (1999 - 6,750,000) 13,815 1
Additional paid-in capital 2,170,920 -
Cumulative translation adjustment 452 -
Deficit accumulated during the development stage (963,128) (200,991)
---------------- --------------
Total Stockholders' Equity 1,222,059 (200,990)
--------------- --------------
$ 1,261,622 $ 31,843
=============================================================================================================================
</TABLE>
History and organization of the Company (Note 1)
The accompanying notes are an integral part of
these consolidated financial statements
1
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
(Unaudited)
<TABLE>
==============================================================================================================================
Cumulative
Amounts from
July 21,
1999
(Date of Three Month Six Month
Inception) to Period Ended Period Ended
June 30, June 30, June 30,
2000 2000 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES
Amortization 20,332 11,092 18,046
Consulting fees 184,880 48,373 78,511
Contract work 1,279 - -
Foreign exchange loss 6,412 - -
Insurance 964 627 627
Interest and bank charges 10,987 904 6,651
Investor relations 2,217 328 328
Marketing and brand development 49,375 49,375 49,375
Newsalert infeed services 16,886 16,886 16,886
Legal and audit fees 126,897 90,466 117,645
Office and miscellaneous 66,519 28,661 52,239
Rent and utilities 42,865 16,601 36,086
Stock based compensation expense 103,850 103,850 103,850
Telephone and communications 20,523 8,971 18,109
Wages and benefits 331,457 177,860 286,099
--------------- --------------- ---------------
Loss before other item (985,443) (553,994) (784,452)
--------------- ---------------- ----------------
OTHER ITEM
Interest income 22,315 18,199 22,315
--------------- --------------- ---------------
Loss for the period $ (963,128) $ (535,795) $ (762,137)
==============================================================================================================================
Basic and diluted loss per share $ (0.04) $ (0.07)
==============================================================================================================================
Weighted average number of shares outstanding 13,815,000 11,284,973
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
2
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in United States Dollars)
(Unaudited)
<TABLE>
==============================================================================================================================
Cumulative
Amounts from
July 21,
1999
(Date of Three Month Six Month
Inception) to Period Ended Period Ended
June 30, June 30, June 30,
2000 2000 2000
---------------- ------------- ---------------
<S> <C> <C> <C>
Net loss $ (963,128) $ (535,795) $ (762,137)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 452 (3,883) 452
---------------- ------------- ---------------
Consolidated comprehensive loss $ (962,676) $ (539,678) $ (761,685)
==============================================================================================================================
Basic and diluted comprehensive loss per share $ (0.04) $ (0.07)
==============================================================================================================================
Weighted average number of shares outstanding 13,815,000 11,284,973
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
3
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
<TABLE>
===========================================================================================================================
Cumulative
Amounts from
July 21,
1999
(Date of Three Month Six Month
Inception) to Period Ended Period Ended
June 30, June 30, June 30,
2000 2000 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (963,128) $ (535,795) $ (762,137)
Items not affecting cash:
Amortization 20,332 11,092 18,046
Stock based compensation expense 103,850 103,850 103,850
Changes in non-cash working capital items:
Increase in accounts receivable (24,417) (15,542) (22,756)
Increase in prepaid expenses (8,893) (668) (8,893)
Decrease in due to related parties (23,116) (39,356) (23,116)
Increase in accounts payable and accrued liabilities 36,063 33,994 17,323
-------------- -------------- -------------
Net cash used in operating activities (859,309) (442,425) (677,683)
-------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (230,176) (72,261) (204,228)
Acquisition of investment in subsidiary (net of cash acquired) 2,257,500 - 2,257,500
-------------- -------------- -------------
Net cash provided by (used in) investing activities 2,027,324 (72,261) 2,053,272
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1 - -
Due to related parties (150,000) (100,000) (150,000)
Repayment of long-term debt - - (214,093)
-------------- -------------- -------------
Net cash used in financing activities (149,999) (100,000) (364,093)
-------------- -------------- -------------
Change in cash and cash equivalents for the period 1,018,016 (614,686) 1,011,496
Effect of exchange rates on cash and cash equivalents 452 (3,883) 452
Cash and cash equivalents, beginning of period - 1,637,037 6,520
-------------- -------------- -------------
Cash and cash equivalents, end of period $ 1,018,468 $ 1,018,468 $ 1,018,468
===========================================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 9)
The accompanying notes are an integral part of
these consolidated financial statements
4
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in United States Dollars)
(Unaudited)
<TABLE>
=============================================================================================================================
Deficit
Accumulated
Additional During the Cumulative Total
Paid-in Development Translation Stockholders'
Shares Amount Capital Stage Adjustment Equity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 21, 1999 - $ - $ - $ - $ - $ -
Common stock issued 160 1 - - - 1
Loss for the period - - - (200,991) - (200,991)
------------ ----------- ------------- ------------- ----------- -------------
Balance, December 31, 1999 160 1 - (200,991) - (200,990)
Common stock issued 53 - - - - -
------------ ----------- ------------- ------------- ----------- -------------
Balance, March 13, 2000 213 1 - (200,991) - (200,990)
Capital stock of
MindfulEye.com at
March 13, 2000 (213) (1) 1 - - -
Capital stock of
MindfulEye at
March 13, 2000 6,905,000 - - - - -
Shares issued to acquire
MindfulEye.com 6,910,000 6,910 2,073,974 - - 2,080,884
Adjustment to par value - 6,905 (6,905) - - -
Stock based
Compensation expense - - 103,850 - - 103,850
Loss for the period - - - (762,137) 452 (761,685)
Balance at June 30, 2000 13,815,000 $ 13,815 $ 2,170,920 $ (963,128) $ 452 $ 1,222,059
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated under the laws of the state of Nevada on June
16, 1977 with authorized common stock of 100,000 shares with par value of
$0.25. On June 20, 1998, the authorized common stock was increased to
100,000,000 shares with a par value of $0.001.
On June 20, 1998, the Company completed a forward common stock split of one
share of its outstanding stock for five shares. This report has been
prepared showing after stock split shares with a par value of $0.001 from
its inception.
The Company has been in the development stage since its inception and has
been primarily engaged in the business of developing mining properties.
During 1982, the Company abandoned its remaining assets and settled its
liabilities and since that date remained inactive until March 2000.
Effective March 13, 2000, the Company acquired all of the issued and
outstanding common stock of MindfulEye.com Systems, Inc.
("MindfulEye.com"). MindfulEye.com was incorporated on July 21, 1999, under
the laws of British Columbia. MindfulEye.com is in the development stage
and is currently developing a subscription-based service for the retail and
institutional investment community that delivers proprietary content
directly to subscribers by wireless devises, fax, e-mail and the web.
The company changed its name from Rabatco, Inc. to MindfulEye, Inc.
("MindfulEye") on May 12, 2000.
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, changes in stockholders' equity
and cash flows at June 30, 2000 and for the periods then ended have been
made. These financial statements should be read in conjunction with the
audited financial statements of the Company for the year ended December 31,
1999. The results of operations for the period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000.
2. BASIS OF PRESENTATION
These financial statements contain the financial statements of MindfulEye
and MindfulEye.com presented on a consolidated basis. On March 13, 2000,
MindfulEye acquired all of the issued and outstanding share capital of
MindfulEye.com by issuing 6,910,000 common shares (Note 6). As a result of
the share exchange, control of the combined companies passed to the former
shareholders of MindfulEye.com. This type of share exchange has been
accounted for as a capital transaction accompanied by a recapitalization of
MindfulEye.com. Recapitalization accounting results in consolidated
financial statements being issued under the name MindfulEye but are
considered a continuation of MindfulEye.com. As a result, the financial
statements presented represent the consolidated financial position of the
above companies as at June 30, 2000 and the results of operations and cash
flows of MindfulEye.com for the period from July 21, 1999 to March 31, 2000
and the results of operations and cash flows of MindfulEye from its deemed
date of acquisition during the period. The number of shares outstanding at
June 30, 2000 as presented are those of MindfulEye.
6
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include MindfulEye, Inc. and
MindfulEye.com Systems, Inc. All significant intercompany balances and
transactions have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding in the period. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss carryforwards.
Deferred tax expenses (benefit) result from the net change during the year
of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" which establishes accounting
and reporting standards for derivative instruments and for hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137 to
defer the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
7
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
The Company accounts for stock-based compensation issued to non-employees
in accordance with the provisions of SFAS 123 and the Emerging Issues Task
Force consensus in Issue No. 96-18 (EITF 96-18"), "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling, Goods or Services".
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This statement
establishes rules for the reporting of comprehensive income and its
components.
Financial instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, and long
term debt. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair value of these financial
instruments approximate their carrying values, unless otherwise noted.
Foreign currency translation
Translation amounts denominated in foreign currencies are translated into
United States currency at exchanges rates prevailing at transactions dates.
Carrying values of monetary assets and liabilities are adjusted at each
balance sheet date to reflect the exchange rate at that date. Gains and
losses from restatement of foreign currency monetary assets and liabilities
are included in income.
Capital assets and amortization
Capital assets are recorded at cost less accumulated amortization.
Amortization is being provided for annually, using the declining balance
method at the following rates:
Computer software 100%
Computer hardware 30%
Furniture and equipment 20%
Leasehold improvements are amortized over the period of the lease.
8
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Disclosure about segments of an Enterprise and related information
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "
Disclosure About Segments of an Enterprise and Related information"
requires use of management approach model for segment reporting. The
management approach model is based on the way a company's management
organizes segments within the company for making operating decisions and
assessing performance. Reporting segments are based on products and
services, geography, legal structure, management structure, or any other
manner in which the management disaggregates a company. Currently, SFAS 131
has no effect on the company's financial statements as substantially all of
the company's operations are conducted in one industry segment in Canada.
4. CAPITAL ASSETS
<TABLE>
======================================================================================================
Net Book Value
------------------------------
Accumulated June 30, December 31,
Cost Amortization 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer hardware $ 138,254 $ 12,202 $ 126,052 $ 20,565
Computer software 10,703 4,069 6,634 3,097
Leasehold improvements 9,354 468 8,886 -
Furniture and equipment 71,865 3,593 68,272 -
-------------- ------------- ------------ -----------
$ 230,176 $ 20,332 $ 209,844 $ 23,662
======================================================================================================
</TABLE>
5. LONG TERM DEBT
<TABLE>
=====================================================================================================================
June 30, December 31,
2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notepayable to a related party, bearing interest at the Bank of
Montreal prime rate plus 2%, or 10% if undeterminable; secured;
repayable on either receipt of proceeds from second round Phase II
Equity financing or Initial Public Offering, whichever is earlier. $ - $ 214,093
=====================================================================================================================
</TABLE>
9
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
6. RECAPITALIZATION
On March 13, 2000, the Company acquired all of the issued and outstanding
share capital of MindfulEye.com. As consideration, the Company issued
6,910,000 shares at a deemed value of $1,930,883 and paid $150,000.
Legally, the Company is the parent of MindfulEye.com. However, as a result
of the share exchange described above, control of the combined companies
passed to the former shareholders of MindfulEye.com. This type of share
exchange has been accounted for as a capital transaction accompanied by a
recapitalization of MindfulEye.com, rather than a business combination.
Accordingly, the net assets of MindfulEye.com will be included in the
balance sheet at book values and the deemed acquisition of the Company will
be accounted for by the purchase method with the net assets of the Company
recorded at fair market value at the date of acquisition. The revenues and
expenses and assets and liabilities reflected in the financial statements
prior to the date of acquisition are those of MindfulEye.com. Revenue and
expenses and assets and liabilities subsequent to the date of acquisition
include the accounts of the Company.
The cost of an acquisition should be based on the fair value of the
consideration given, except where the fair value of the consideration given
is not clearly evident. In such a case, the fair value of the net assets
acquired is used.
The 6,910,000 common shares issued pursuant to the acquisition agreement
were deemed to have a value of $1,930,883 based on the fair value of the
Company's net assets.
The total purchase price of $2,080,833 was allocated as follows:
Cash $ 2,257,500
Due to related parties (173,117)
Accounts payable and accrued liabilities (3,500)
--------------
$ 2,080,883
7. STOCK OPTIONS AND WARRANTS
The following stock options were outstanding at June 30, 2000.
========================================================================
Number Exercise
of shares Price Expiry date
------------------------------------------------------------------------
1,815,000 $3.50 June 7, 2002
========================================================================
The following warrants were outstanding at June 30, 2000.
========================================================================
Number Exercise
of shares Price Expiry date
------------------------------------------------------------------------
537,500 $ 2.10 March 20, 2001
then at $2.50 March 20, 2002
========================================================================
10
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
8. CAPITAL STOCK
As a result of the recapitalization described in Note 6, whereby
MindfulEye.com is deemed to be the acquiror for accounting purposes, the
number and value of common shares issued and outstanding at June 30, 2000
are MindfulEye's.
9. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
<TABLE>
=================================================================================
June 30, December 31,
2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for interest $ - $ -
Cash paid during the period for income taxes - -
=================================================================================
</TABLE>
The following non-cash transaction occurred during the six month period
ended June 30, 2000:
a) The company issued 6,910,000 shares at a deemed value of $1,929,365 to
acquire 100% of the outstanding shares of MindfulEye.com.
10. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of quoted market price of the Company's
stock at the date of grant over the option price.
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS 123 and the Emerging Issues Task Force consensus in
Issue No. 96-18, "Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling Goods or
Services".
Following is a summary of the status of the plan during 2000.
<TABLE>
==================================================================================================
Number Weighted
of Shares Average
Exercise
Price
--------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1999 - $ -
Granted 1,815,000 3.50
Forfeited - -
Exercised - -
-----------
Outstanding at June 30, 2000 1,815,000 $ 3.50
==================================================================================================
Weighted average fair value of options granted during the period $ 1.14
==================================================================================================
</TABLE>
11
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
10. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
Following is a summary of the status of the options outstanding at June 30,
2000:
<TABLE>
=====================================================================================================================
Outstanding Options Exercisable Options
---------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.50 1,815,000 1.94 $ 3.50 52,500 $ 3.50
=====================================================================================================================
</TABLE>
Compensation
The Company granted 550,000 options to consultants during the current
period which are accounted for under the Emerging Issues Task Force
Consensus in Issue No. 96-18. Accordingly, using the Black-Scholes option
pricing model, the options are marked to fair value through charges to
operations as stock-based compensation. Stock-based compensation recognized
pursuant to EITF 96-18 during the six month period ended June 30, 2000 was
$103,850. This amount can be allocated to the other expense categories in
the accompanying statements of operations as consulting fees of $103,850.
The Company granted 1,265,000 options to employees during the current
period, which are accounted for using Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Had compensation
expense relating the 1,265,000 options granted to employees been recognized
on the basis of fair value pursuant to Statement of Financial Accounting
Standard No. 123, net loss and loss per share would have been adjusted as
follows:
<TABLE>
===========================================================================================
Three Month Six Month
Period Ended Period Ended
June 30, June 30,
2000 2000
---------------------------------------------------------------------- --------------------
<S> <C> <C>
Loss for the period
As reported $ (535,795) $ (762,137)
====================================
Pro forma $ (604,372) $ (830,714)
====================================
Basic and diluted loss per share
As reported $ (0.04) $ (0.07)
====================================
Pro forma $ (0.04) $ (0.07)
===========================================================================================
</TABLE>
12
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
10. STOCK BASED COMPENSATION EXPENSE (cont'd....)
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair values are as follows:
===========================================================================
2000 1999
---------------------------------------------------------------------------
Risk free interest rate 6.616% -
Expected life of the options 2 years -
Expected volatility 103.93% -
Expected dividend yield - -
===========================================================================
11. RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related parties
during the six month period ended June 30, 2000:
a) Paid or accrued $33,409 to director and an officer for consulting fees
(December 31, 1999 - $95,943).
b) Included in long-term debt is an amount of $Nil (December 31, 1999 -
$214,093) which is payable to a director of the Company.
c) Included in accounts payable and accrued liabilities is an amount of
$9,436 (December 31, 1999 - $5,571) which is payable to directors of
the Company.
d) The Company repaid $100,000 for amounts due to related parties.
12. COMMITMENTS
a) The Company leases office premises pursuant to an operating lease,
which expires in 2005. Future annual lease payments are as follows:
2001 $ 93,740
2002 95,402
2003 100,387
2004 100,387
2005 75,290
-------------
$ 465,206
=============
13
<PAGE>
MINDFULEYE, INC.
(FORMERLY RABATCO, INC.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited)
JUNE 30, 2000
================================================================================
13. INCOME TAXES
The Company's total deferred tax asset is as follows:
<TABLE>
=================================================================================================
June 30, December 31,
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax benefit of net operating loss carryforward $ 327,463 $ 68,337
Valuation allowance (327,463) (68,337)
------------- --------------
$ - $ -
=================================================================================================
</TABLE>
The Company has a net operating loss carryforward of approximately
$963,128, which expires in 2019 and 2020. The Company provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding realizability
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the six month period ended June 30, 2000, and
the period from July 21, 1999 to June 30, 2000 was $761,685 and $962,676,
respectively. The only item included in other comprehensive loss is foreign
currency translation adjustments in the amounts of $452 for the six month
period ended June 30, 2000 and $452 for the period from July 21, 1999 to
June 30, 2000.
<TABLE>
================================================================================================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance, December 31, 1999 $ - $ -
Current period change 452 452
------------- --------------
Ending balance, June 30, 2000 $ 452 $ 452
================================================================================================
</TABLE>
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems, which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
14
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for disclosures that report the Company's historical results, the
statements set forth in this section contain forward-looking statements. Words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
Actual results could differ materially form those projected in forward-looking
statements. Additional information and factors that could cause actual results
to differ materially from those in the forward-looking statements are set forth
in this Form 10-QSB. The Company desires to take advantage of certain provisions
in the Private Securities Litigation Reform Act of 1995, which provide a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company hereby cautions stockholders, prospective investors in the Company, and
other readers to not place undue reliance on these forward-looking statements,
which can only address known events as of the date of this report.
General Overview
Mindfuleye, Inc. (formerly Rabatco, Inc.)(the "Company" or "Mindfuleye"), was
incorporated under the laws of the State of Nevada on June 16, 1977. From the
Company's inception in 1977 through 1982, the Company was primarily engaged in
the business of mineral resource exploration. The Company remained inactive from
1982 to 1998. On March 13, 2000, the Company completed the acquisition of
MindfulEye.com Systems, Inc., a company engaged in the business of Internet
software and technology research and development. On May 12, 2000, the Company
changed its name to MindfulEye, Inc.
The financial statements presented in this report contain the financial
statements of Mindfuleye, Inc. and MindfulEye.com Systems, Inc. on a
consolidated basis. The Company's acquisition of MindfulEye.com Systems, Inc.
has been accounted for as a capital transaction accompanied by a
recapitalization of MindfulEye.com Systems, Inc. As a result, the financial
statements presented represent the consolidated financial position of
Mindfuleye, Inc. and MindfulEye.com, Systems, Inc. as at June 30, 2000, the
results of operations and cash flows of MindfulEye.com Systems, Inc. for the
period from July 21, 1999 to June 30, 2000 and the results of operations and
cash flows of MindfulEye from its deemed date of acquisition during the period.
Mindfuleye is in the process of completing the development of a technology that
is designed to provide subscribers to its service sources topic-related content
available on the Internet. The first subscriber service that Mindfuleye intends
to provide is designed to monitor the content on investor related Internet web
sites for information of interest to subscribers in the investment-related
communities. Mindfuleye's technology is designed to:
- browse and monitor Internet website for specific types of information,
including chat room discussions, newswire postings and published
reports;
- rank it for sentiment using Artificial Intelligence (AI) technology;
and
- deliver it to subscribers in a summarized format.
Mindfuleye intends to use artificial computer intelligence to rank investor
information based on the nature of the comments, reports, news and other
information and present this information in a "Moodindex" or "Moodscore."
Once the technology is fully developed, the Company anticipates that subscribers
will be able to select a number of delivery options for receiving the
information it collects, including cell phone, pager, email, web, fax, and
instant messaging. The Company anticipates that it will be able to deliver
sourced content shortly after being discovered, batched in time periods, or
summarized in daily reports.
Mindfuleye's system is being developed in a modular fashion so that each content
source will have a dedicated collection system that will permit Mindfuleye to
add new information sources or "feeds" quickly as they become available. This
modular architecture also assists in the massive scaling of the system.
Mindfuleye has not fully completed the development of the technology related to
the services that it intends to provide, and Mindfuleye cannot assure you that
it will successfully complete such development or that its subscription service
will be commercially successful.
15
<PAGE>
The following discussion and analysis explains Mindfuleye's results of
operations for the three-month fiscal quarter from April 1, 2000 to June 30,
2000. You should review the discussion and analysis of financial condition in
conjunction with Mindfuleye's financial statements and the related notes, as
well as statements detailed in Mindfuleye's Securities and Exchange Commission
filings.
Results of Operations
Fiscal Quarter Ended June 30, 2000
Revenues. Mindfuleye unofficially launched the beta version of its website
during the quarter ended June 30, 2000. Mindfuleye expects to launch the final
version of its web site and subscription-based service during the fourth quarter
2000. During the quarter ended June 30, 2000, Mindfuleye did not generate any
revenue from its operations. Mindfuleye had interest income in the amount of
$18,199.
Expenses. During the fiscal quarter ended June 30, 2000, Mindfuleye incurred
total expenses of $553,994 related primarily to: (i) research and developing its
web technologies (ii) marketing and brand development (iii) professional and
legal fees relating to its Securities and Exchange Commission reports and (iv)
general overhead and administrative expenses. During the quarter Mindfuleye paid
consulting fees in the amount of $48,373 which included fees paid to (i) Everest
Advisory Group Inc., for the services of Julian Remedios as Mindfuleye's chief
financial officer and (ii) fees paid to Tod Maffin Inc. relating to general
consulting services. Mindfuleye paid legal and accounting fees of $90,466 during
the fiscal quarter ended June 30, 2000 related to preparation of its filings
with the Securities and Exchange Commission, patent searches and other corporate
and accounting matters. Mindfuleye incurred other expenses, including
amortization expenses of $11,092, insurance expenses of $627, interest and bank
charges expenses of $904, investor relations expenses of $328, marketing and
brand development expenses of $49,375, infeed services expenses of $16,886,
office and miscellaneous expenses of $28,661, rent and utilities expenses of
$16,601, wages expenses of $177,860 and non-cash stock based compensation
expenses of $103,850.
Mindfuleye anticipates that expenses relating to the development of its web site
will increase substantially during the third and the fourth quarters of 2000 as
it plans to launch its official web site and subscription based services.
Mindfuleye also anticipates that expenses relating to marketing and sales will
increase during the third and forth quarter of 2000 as it continues an extensive
campaign to market and promote the MindfulEye.com website and subscription
services.
Net Loss. Mindfuleye had a net loss of $535,795 for the fiscal quarter ended
June 30, 2000.
Six Month Period Ended June 30, 2000
Revenues. Mindfuleye unofficially launched the beta version of its website
during the six month period ended June 30, 2000. During six month period ended
June 30, 2000, Mindfuleye did not generate any revenue from its operations.
Mindfuleye had interest income in the amount of $22,315.
Expenses. During the six month period ended June 30, 2000, Mindfuleye incurred
total expenses of $784,452 related primarily to: (i) research and developing its
web technologies (ii) marketing and brand development (iii) professional and
legal fees relating to its Securities and Exchange Commission reports and (iv)
general overhead and administrative expenses. During the period Mindfuleye paid
consulting fees in the amount of $78,511 which included fees paid to (i) Everest
Advisory Group Inc., for the services of Julian Remedios as Mindfuleye's chief
financial officer and (ii) fees paid to Tod Maffin Inc. relating to general
consulting services. Mindfuleye paid legal and accounting fees of $117,645
during six month period ended June 30, 2000 related to preparation of its
filings with the Securities and Exchange Commission, patent searches and other
corporate and accounting matters. Mindfuleye incurred other expenses, including
amortization expenses of $18,046, insurance expenses of $627, interest and bank
charges expenses of $6,651, investor relations expenses of $328, marketing and
brand development expenses of $49,375, infeed services expenses of $16,886,
office and miscellaneous expenses of $52,239, rent and utilities expenses of
$36,086, wages expenses of $286,099 and non-cash stock based compensation
expenses of $103,850.
Net Loss. Mindfuleye had a net loss of $762,137 for the six month period ended
June 30, 2000.
16
<PAGE>
Plan of Operation
During Mindfuleye's fiscal quarter ended June 30, 2000, Mindfuleye launched the
beta-version of its web site. Mindfuleye anticipates the officially launch of
its web site will occur during the fourth quarter 2000, and intends to begin
accepting subscribers to its services.
After the official launch of its website, Mindfuleye intends to focus on (i)
intensifying its marketing and promotional efforts for the MindfulEye.com
website and brand development; (ii) developing strategic relationships with
other Internet providers; (iii) obtaining subscribers for its services and (iv)
developing and expanding its website offerings.
Capital Requirements
Mindfuleye anticipates its operating budget to implement its plan of operations
and to meet its financial obligations during the remainder of its fiscal year
ending December 31, 2000, will be as follows:
<TABLE>
PERIOD
-----------------------------------------
Fiscal Quarter Ended
-----------------------------------------
DESCRIPTION September 30, December 30
2000 2000
----------------------------------------------------------------------------------------------
<S> <C> <C>
Technology & product development $163,000 $180,000
Marketing and brand development $100,000 $120,000
Salaries & benefits - management and office $130,000 $130,000
In-feed charges from third parties $32,000 $28,000
Legal, regulatory filings and accounting $39,000 $34,000
Office and administration $51,000 $51,000
Investor relations $50,000 $50,000
Insurances $10,000 $10,000
Capital equipment $55,000 $15,000
-----------------------------------------
Totals $630,000 $618,000
</TABLE>
Liquidity and Capital Resources
As at June 30, 2000, Mindfuleye had working capital on hand in the amount of
$1,012,215. Mindfuleye had cash or cash equivalents of $1,018,468, accounts
receivables of $24,417 and prepaid expenses and deposits in the amount of
$8,893. Mindfuleye had accounts payable and accrued liabilities in the amount of
$39,563.
Mindfuleye anticipates that its working capital is sufficient to satisfy its
cash requirements through to October 31, 2000. Mindfuleye anticipates it will be
required to raise financing during or prior to the fourth quarter of 2000 to
allow the company to expand its operations in 2001. Mindfuleye anticipates that
it will be required to raise at least $300,000 during fiscal year 2000 and an
additional $3,000,000 to meet its anticipated expansion to the Company's
operations for marketing, developing technology, applications and products, for
the year 2001. Mindfuleye has no arrangements for financing, and there can be no
assurance that it will successful acquire sufficient financing to fund its plan
of operation on terms acceptable to Mindfuleye, if at all.
Mindfuleye believes its capital requirement estimates are reasonable. The
capital requirements are only estimates and can change for many different
reasons, some of which are beyond Mindfuleye's control. Mindfuleye is a
development stage company, which means that it is in the process of developing
its technologies and that it currently has no revenues from its operations.
Mindfuleye anticipates that it will officially launch its website to the public
by the end of September 2000 and marketing its services to subscribers on a
subscription fee basis. Mindfuleye currently has no subscribers and earns no
income from its operations. Mindfuleye does not believe it will receive any
significant revenue from its subscription services until at least 2001. There
can be no assurance that Mindfuleye will successfully launch its web site as
planned or that a sufficient number of subscribers will subscribe to the
Mindfuleye service to make it commercially viable. Mindfuleye does not
anticipate it will acquire or dispose of any significant equipment during 2000.
17
<PAGE>
Product Research and Development
Mindfuleye currently develops all of its technologies internally. Mindfuleye
anticipates it will spend approximately $1,500,000 to develop the technology
related to its MindfulEye.com services and support systems during the next 12
months. Mindfuleye may also engage consultants to assist with product research
and development.
The cost for developing technology is expensive and the process will require
testing and refinement. Mindfuleye's commercial success will depend on its
ability to attract subscribers to its services. This will require Mindfuleye to
develop and use increasing sophisticated technologies to generate, sustain and
maintain user interest and satisfaction.
There can be no assurance that Mindfuleye will successfully develop and test the
technologies related to it services on a timely basis, if at all. Any
substantial delay in obtaining the required financing or developing the
MindfulEye services and the support services for subscribers would have a
materially adverse effect on Mindfuleye's business and results of operations.
Personnel
As at June 30, 2000, Mindfuleye had 13 employees, including 7 programmers and
developers, who assist us in development of its business and its internal
operating and information systems, and 6 employees who are engaged in general
and administrative and marketing functions.
Mindfuleye also engages independent consultants to assist in the development of
its technologies and applications, for public relations services, NLP (natural
language processing) development, marketing services and communication
consulting. Mindfuleye may also engage additional consultants in the future to
assist it with the development of software and information systems and
implementation of its business plan.
Mindfuleye anticipates that during 2000 it may hire up to 4 employees to assist
in the technology and product applications and two marketing and sales support
personnel.
Mindfuleye's success will depend in large part on its ability to attract and
retain skilled and experienced employees and consultants. Mindfuleye does not
anticipate any of its employees will be covered by a collective bargaining
agreement. Mindfuleye does not currently maintain key man life insurance on any
of its directors or executive officers.
Subsequent to June 30, 2000, Mindfuleye hired 2 additional employees to assist
in application development.
Inflation
Mindfuleye's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on the
Company's operations in the future.
Dividends
The Company has not paid any dividends on its stock.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
18
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Form 8K
The Company filed no reports on Form 8-K for the Quarter ended June 30,
2000.
19
<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 thereto duly authorized.
Date: August 11, 2000
MINDFULEYE, INC.
/s/ Ray Torresan
------------------------------------
Chairman of the Board of Directors,
President
/s/ Julian Remedios
------------------------------------
Chief Financial Officer
20
