<PAGE> 1
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 quarter ended April 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-24332
The S.I.N.C.L.A.R.E. GROUP, INC.
--------------------------------
(Exact name of Registrant as specified in charter)
Delaware 23-2753253
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
636 Roslyn Avenue, Montreal, Quebec (Canada) H3Y 2T9
----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 514-990-8141
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act 1934 during the preceding 12 months (or for such period that
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
(1). YES NO X
------- -------
(2). YES X NO
------- -------
The number of shares outstanding of the issuer's one class of common
stock, as of April 30, 1996 is 15,208,542.
<PAGE> 2
THE S.I.N.C.L.A.R.E. GROUP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Balance Sheets at April 30, 1996 (Unaudited) and
October 31, 1995
Consolidated Statements of Operations for the six months
ended April 30, 1996 and 1995 (Unaudited)
Consolidated Statement of Cash Flows for the six months
ended April 30, 1996 and 1995 (Unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports and Form 8-K
<PAGE> 3
THE S.I.N.C.L.A.R.E. GROUP, INC.
FINANCIAL STATEMENTS
APRIL 30, 1996 AND OCTOBER 31, 1995
<PAGE> 4
THE S.I.N.C.L.A.R.E. GROUP, INC.
BALANCE SHEETS
APRIL 30, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,130 $ 148,619
Accounts receivable 598,804 -
------------ ---------
599,934 148,619
------------ ---------
PROPERTY AND EQUIPMENT, net 286,646 263,991
OTHER ASSETS, net 231,768 -
------------ ---------
TOTAL ASSETS $ 1,118,348 $ 412,610
============ =========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 146,790 $ -
Accounts payable and accrued expenses 17,376 19,964
Other liabilities 158,947 148,453
Income taxes payable 194,000 119,000
------------ ---------
517,113 287,417
LONG-TERM DEBT, net of current portion 122,230 -
------------ ---------
TOTAL LIABILITIES $ 639,343 $ 287,417
------------ ---------
STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK -
$1.00 Series A, $.001 par value; 1,300,000 shares authorized,
none issued and outstanding $ - $ -
$2.50 Series B, $.001 par value; 1,100,000 shares authorized,
none issued and outstanding at April 30, 1996 and 1,000,000
issued and outstanding at October 31, 1995 - 1,000
COMMON STOCK - $.001 par value; 100,000,000 shares
authorized; 15,208,542 shares issued at April 30, 1996
and 14,938,542 at October 31, 1995 15,209 14,939
ADDITIONAL PAID-IN CAPITAL 205,802 55,072
RETAINED EARNINGS 259,017 178,299
------------ ---------
$ 480,028 $ 249,310
------------ ---------
LESS: TREASURY STOCK
Common stock - 1,022,817 shares at par value 1,023 1,023
RECEIVABLE FROM STOCKHOLDER - 123,094
------------ ---------
1,023 124,117
------------ ---------
TOTAL STOCKHOLDERS' EQUITY $ 479,005 $ 125,193
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,118,348 $ 412,610
============ =========
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 5
THE S.I.N.C.L.A.R.E. GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
April 30, April 30, April 30, April 30,
1996 1995 1996 1995
------------- ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 199,221 $ 132,907 $ 697,062 $ 162,953
COST OF SALES 102,903 95,696 151,382 109,152
--------- ---------- --------- ----------
GROSS PROFIT 96,318 37,211 545,680 53,801
OPERATING EXPENSES 134,970 - 389,962 -
--------- ---------- --------- ----------
INCOME (LOSS) BEFORE TAXES (38,652) 37,211 155,718 53,801
INCOME TAXES (BENEFIT) (8,651) 14,900 75,000 21,500
---------- ---------- --------- ----------
NET INCOME (LOSS) $ (30,001) $ 22,311 $ 80,718 $ 32,301
========== ========== ========= ==========
EARNINGS (LOSS) PER
COMMON SHARE $( -) $ - $ .01 $ -
========== ========== ========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 15,208,542 11,773,000 15,173,653 11,773,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 6
THE S.I.N.C.L.A.R.E. GROUP, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 80,718 $ 32,301
Adjustments to reconcile net income
Depreciation and amortization 127,102 29,514
Changes in assets and liabilities
Accounts receivable (598,804) -
Accounts payable and accrued expenses (2,588) 239,233
Other liabilities 10,494 -
Income taxes payable 75,000 21,500
Long-term debt 269,020 -
---------- ----------
Net cash provided by (used in) operating activities (39,058) 322,548
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (54,915) (313,180)
Purchases of rights (144,000) -
----------- -----------
Net cash used in investing activities (198,915) (313,180)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Donated capital - 69,862
Principal payments on long-term debt (32,610) -
Satisfaction of stockholder receivable 123,094 -
---------- -----------
Net cash provided by financing activities 90,484 69,862
---------- -----------
NET INCREASE (DECREASE) IN CASH (147,489) 79,230
CASH - BEGINNING OF PERIOD 148,619 -
---------- ----------
CASH - END OF PERIOD $ 1,130 $ 79,230
========== ==========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Purchase of rights and database $ 302,513 $ -
========== ==========
Issuance of preferred stock for rights $ 144,000 $ -
========== ==========
Issuance of common stock for legal fees $ 6,000 $ -
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 7
THE S.I.N.C.L.A.R.E. GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND OCTOBER 31, 1995
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended October 31, 1995.
The accompanying interim financial statements have not been audited by
independent certified public accountants, but in the opinion of management,
such financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to summarize fairly the results of operations,
and are not necessarily indicative of the results to be expected for the full
year.
NOTE 2 - CAPITAL STOCK
On November 27, 1995 the company issued 1,300,000 of Series A $1.00 convertible
preferred stock and 1,100,000 shares of Series B $2.50 convertible preferred
stock, both with a par value $0.001, in exchange for exclusive rights to sell
and service software known as Federation On-Line Membership Kit for Windows
("Kit's"). The Kit's were valued at $144,000 and charged to operations.
On February 7, 1996 the company by authorization from the Board of Directors
approved a 20 for 1 reverse split of the two series of preferred stock, Series
A and Series B and to allow a conversion into common stock on a one to one
basis. The split was retroactive to October 31, 1995.
NOTE 3 - AGREEMENTS
On November 27, 1995, the company entered into an agreement to obtain the
database and supporting software from The New Industrialist for the United
States public companies in exchange for 40% of the net profits generated from
the database. In addition, a license agreement related to the publication of
The New Industrialist - Strictly Canadian requires the company to pay the
licensor a royalty of 15% of the gross profits from the publication which was
first published in February 1996.
On December 29, 1995, the company was granted the right to use certain
commercial marks and acquired a database of all public companies trading in
Canada and software for a total amount of $326,095 which is included in other
assets. Upon execution of the agreement, the company paid $32,610, with the
balance of $293,485 payable over three years in quarterly installments, at an
interest rate of 8.5%.
On February 15, 1996, the company entered into a one year agreement for
consulting services for the development of computer systems in exchange for the
issuance of 100,000 shares of common stock payable at the discretion of the
consultant.
NOTE 4 - SUBSEQUENT EVENTS
On May 3, 1996 the company formed Cyberlinx Corporation ("Cyberlinx") as a
wholly-owned subsidiary as a means of segregating non-financial Internet
services. In May 1996, Cyberlinx acquired Trackers Sports Network, Inc.
("Trackers") in exchange for providing $550,000 in development costs associated
with the underdeveloped software technology which provides computerized
handicapping information for thoroughbred horse races. On May 7, 1996,
Trackers entered into two Executive Employment Agreements with two unaffiliated
individuals to pay a base salary of $62,500 per year for a period of two years
and an incentive salary equal to half of 1%of the adjusted net profit of
Trackers for the two year period. On a related transaction, the two employees
of the May 7, 1996 Executive Employment Agreement received 250,000 shares each,
$0.001 par value common stock of Cyberlinx in exchange for the transfer of
proprietary software and related source codes for a program called the Daily
Racing Form Reader. On May 9, 1996, Cyberlinx sold 30%, or 9,000,000 shares,
of the 30,000,000 total shares issued and outstanding shares of Trackers to two
unaffiliated third parties for a total consideration of $500,000. The proceeds
will be used for software development.
<PAGE> 8
THE S.I.N.C.L.A.R.E. GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND OCTOBER 31, 1995
NOTE 4 - SUBSEQUENT EVENTS (Continued)
On May 14, 1996, the company entered into a licensing agreement to offer access
to its FlexQuote product for a monthly application fee. Through July 1996, no
fee revenue has been received from this license agreement.
On May 29, 1996, the company acquired certain rights to a software system and
database application known as Internet News Network ("INN") in exchange for
740,000 shares of the company's common stock, valued at $1,866,000. In
addition, royalty payments are required at the rate of 10% of gross income up
to $5 million, with decreasing rates from 8% to 2% of gross income between $5
million and $50 million and over. On May 31, 1996 the rights to the
non-financial reporting functions of INN were transformed to the company's
wholly-owned subsidiary, Cyberlinx Corporation ("Cyberlinx"). On June 6, 1996,
the Board of Directors authorized the spin-off of Cyberlinx to the company's
stockholders of record as of June 26, 1996 and payable July 29, 1996. The
issuance of common shares has been deferred until a later date.
On July 30, 1996, the company acquired certain operating systems and software
applications known as FlexQuote for the North American market of a stock
quoting system. Under the agreement the company may be required to pay
$500,000, payable at the rate of 5% of gross revenues with the first payment
deferred until $1 million in gross revenues are generated from FlexQuote
operating systems. In addition, royalty payments are required at the rate of
10% of gross revenues up to $5 million, with decreasing rates from 8% to 2% of
gross revenues between $5 million and $50 million and over, payable monthly.
<PAGE> 9
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company operates under the name Federation On-Line Services, which offers
Internet access functions, structures, on-line data entry and retrievable
services, processes and manages voice and data transmission using multimedia
gateways. The source of income for the Company has derived primarily from
these areas, including the design of Internet websites, processing Internet
inquiries and acting as a provider of source information. These services were
developed in conjunction with the Company's research and development efforts to
provide a new financial service system called FlexQuote(TM). To date, the
FlexQuote(TM) service has not been commercially available. Additionally, the
Company has initiated publishing activities by offering a 68-page financial
journal known as The New Industrialist...Strictly Canadian(TM).
Basis of Presentation
The results of operation includes: (i) data processing and financial services;
(ii) related technical services including pre-FlexQuote(TM) services offered on
Internet; and (iii) publishing of the New Industrialist...Strictly
Canadian(TM).
Results of Operation
For the three months ending April 30, 1996, representing the second quarter,
the Company had gross revenue of $199,221 versus $132,907 for the
corresponding April 30, 1995 period. The Company for the three months ending
April 30, 1996 has an operating loss of $30,001 versus a profit of $22,311 for
the corresponding period. Operating losses for the three month period ending
April 30, 1996 were attributed to higher than expected operating expenses and
cost of sales. Additionally, the adjustments made in the audited financial
statements for the year ending October 31, 1996 have been reflected
accordingly.
For the six months ending April 30, 1996, net revenues were $697,062 versus
$162,953 for the corresponding period, with net income of $80,718 versus
$32,301. Based on 15,173,653 shares outstanding, the Company earned $0.01 per
share for the six months ending April 30, 1996 versus minimal income for the
corresponding period based on 11,773,000 outstanding.
As reported in the Company's news release dated May 16, 1996, the Company
declared second quarter results of $1,266,141 instead of the adjusted unaudited
of $697,062, with earnings of $891,384 instead of $80,718. The Company did
not deliver the British
<PAGE> 10
database and consequently did not report the income and charged off various
expenditures that effectively reduced net cash from operating activities to a
net loss of $38,058, creating a net decrease in cash of $147,487. Further
adjustments were included as represented by the reconciliation of the Company's
certified financial statements for the year ending October 31, 1995. The
audited year end report was not completed until August 27, 1996.
Liquidity and Capital Resources
The Company's liquidity was materially effected by changes in the method of
showing income and to charge off against earnings accounts receivable
representing $598,804. Additionally, the Company's adjustments to reconcile
net income includes $127,102 of depreciation and amortization versus $29,514
for the April 30, 1995 period. Therefore, the Company had a decrease in cash
of $39,058 from continuing operations for the six months ending April 30, 1996
versus $322,548 for the corresponding 1995 period. Additionally, cash
available at the beginning of the six month period ending April 30, 1996 was
$148,619 and at the end of the period was $1,130 versus $79,230 for the
corresponding six month period.
The Company's capital was materially effected by reconciliation to the year
ended audited statements (October 31, 1995) and adjustments for the six month
period ending April 30, 1996. Additionally, the Company has elected to
discontinue certain activities as the means to consolidate the business and
financial on-line data entry and retrievable services. This system known as
FlexQuote(TM), represents a substantial commitment to resources and future
business activity. However, the Company may lack sufficient capital resources
and technical ability to fully implement FlexQuote(TM), and if FlexQuote(TM)
fails, the Company may be at risk as a viable commercial entity.
Additionally, the Company has published The New Industrialist...Strictly
Canadian(TM) as a 68-page monthly financial journal. The results to date are
being assessed and management believes that the product has commercial
viability. However there are no assurances that the publication will find long
term success or whether the Company will have the financial resources to fully
implement its potential if such potential does exist.
Other Transactions
On February 15, 1996, the Company entered into a one year agreement for
consulting services for the development of computer systems in exchange for the
issuance of 100,000 shares of common stock payable at the discretion of the
consultant.
<PAGE> 11
Part II. OTHER INFORMATION
ITEM 1
Legal proceedings
NONE
ITEM 2
Changes in Securities
NONE
ITEM 3
Defaults Upon Senior Securities
NONE
ITEM 4
Submission of Matters to a Vote of Security Holders
NONE
ITEM 5
Other Information
NONE
ITEM 6
Exhibits and Reports on Form 8-K
NONE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB
QUARTERLY FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 1,130
<SECURITIES> 0
<RECEIVABLES> 598,804
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 599,934
<PP&E> 368,095
<DEPRECIATION> 81,449
<TOTAL-ASSETS> 1,118,348
<CURRENT-LIABILITIES> 517,113
<BONDS> 122,230
0
0
<COMMON> 15,209
<OTHER-SE> 463,796
<TOTAL-LIABILITY-AND-EQUITY> 1,118,348
<SALES> 199,221
<TOTAL-REVENUES> 199,221
<CGS> 102,903
<TOTAL-COSTS> 102,903
<OTHER-EXPENSES> 134,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (38,652)
<INCOME-TAX> (8,651)
<INCOME-CONTINUING> (30,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,001)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
