<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 July 31, 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 July 31, 1996 is 15,948,542.
<PAGE> 2
THE S.I.N.C.L.A.R.E. GROUP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Balance Sheets at July 31, 1996 (Unaudited) and
October 31, 1995
Consolidated Statements of Operations for the nine months
ended July 31, 1996 and 1995 (Unaudited)
Consolidated Statement of Cash Flows for the nine months
ended July 31, 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
JULY 31, 1996 AND OCTOBER 31, 1995
<PAGE> 4
THE S.I.N.C.L.A.R.E. GROUP, INC.
BALANCE SHEETS
JULY 31, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
------------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ (1,071) $ 148,619
Accounts receivable 296,879 -
------------ -----------
295,808 148,619
PROPERTY AND EQUIPMENT, net 230,383 263,991
OTHER ASSETS, net 161,023 -
------------ -----------
TOTAL ASSETS $ 687,214 $ 412,610
============ ===========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 146,790 $ -
Accounts payable and accrued expenses 65,431 19,964
Other liabilities 158,947 148,453
Income taxes payable 119,000 119,000
------------ -----------
490,168 287,417
LONG-TERM DEBT - Net of current portion 122,230 -
------------ -----------
TOTAL LIABILITIES 612,398 287,417
------------ -----------
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 July 31, 1996 and 1,000,000 shares
issued and outstanding at October 31, 1995 - 1,000
COMMON STOCK - $.001 par value; 100,000,000
shares authorized; 15,948,542 shares issued at July 31, 1996 and
14,938,542 at October 31, 1995 15,949 14,939
ADDITIONAL PAID-IN CAPITAL 2,071,062 55,072
RETAINED EARNINGS (2,011,172) 178,299
------------- ----------
75,839 249,310
------------ ----------
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 74,816 125,193
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 687,214 $ 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 July 31, Nine Months Ended July 31,
---------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 106,373 $ 206,250 $ 803,435 $ 369,203
COST OF SALES 39,682 8,935 191,064 118,087
----------- --------- ----------- ----------
GROSS PROFIT 66,691 197,315 612,371 251,116
----------- --------- ----------- ----------
OPERATING EXPENSES
Purchased research and development 1,866,000 - 1,866,000 -
Other 545,880 38,213 935,842 38,213
----------- ---------- ----------- ----------
2,411,880 38,213 2,801,842 38,213
----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (2,345,189) 159,102 (2,189,471) 212,903
INCOME TAXES (BENEFIT) (75,000) 63,500 - 85,000
------------ ---------- ----------- ----------
NET INCOME (LOSS) $(2,270,189) $ 95,602 $(2,189,471) $ 127,903
============ ========== ============ ==========
EARNINGS (LOSS) PER COMMON SHARE $ (0.15) $ 0.01 $ (0.14) $ 0.01
============= ========== ============ ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,715,281 11,773,000 15,196,797 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
NINE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,189,471) $ 127,903
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 254,110 44,271
Purchased research and development 1,866,000 -
Changes in assets and liabilities
Accounts receivable (296,879) -
Accounts payable and accrued expenses 45,467 221,605
Other liabilities 10,494 -
Income taxes payable - 85,000
Long-term debt 269,020 -
----------- ----------
Net cash provided by (used in) operating activities (41,259) 478,779
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (54,915) (313,180)
Purchase 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 (149,690) 235,461
CASH - BEGINNING OF PERIOD 148,619 -
----------- ----------
CASH - END OF PERIOD $ (1,071) $ 235,461
============ ==========
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
JULY 31, 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.
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 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> 8
THE S.I.N.C.L.A.R.E. GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 AND OCTOBER 31, 1995
NOTE 4 - ACQUISITIONS
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.
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. 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.
NOTE 5 - SUBSEQUENT EVENTS
On August 3, 1996, Cyberlinx acquired Internet Preview Channel, Inc. ("IPCI")
for 6,000,000 shares of Cyberlinx Corporation common stock, $0.001 par value,
which has been valued at $6,000. IPCI is a development stage corporation
formed to design and market an Internet television show which will feature
video previews on the Internet using world wide web resources.
<PAGE> 9
ITEM 3
Management's Discussion and Analysis of Financial Condition and Results of
Operation
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. A significant portion of these activities were transferred on May 3,
1996 to a wholly owned subsidiary known as Cyberlinx Corporation
("Cyberlinx"), with the intent to distribute such ownership to the Company's
shareholders. The purpose was to separate the activities and allow for
Cyberlinx to assist in supporting both financially and technically, the
development of certain applications to be incorporated into the Company's
Internet services and activities. Therefore, the Company's prime source of
activities are the FlexQuote(TM) system and the publishing of 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 July 31, 1996, representing the third quarter, the
Company had net revenue of $106,373 versus $206,250 for the corresponding July
31, 1995 period. The Company for the three months ending July 31, 1996 has an
operating loss of $2,270,189 versus a profit of $95,602 for the corresponding
period. A significant portion of operating losses was the one time charge of
$1,866,000 on research and development of "INN" and $293,000 for the purchase of
the British and Mexican databases. For the three months ending July 31, 1996,
the Company had a loss of $0.15 per share on 15,715,281 shares outstanding.
For the nine months ending July 31, 1996, net revenues were $803,435 versus
$369,203 for the corresponding period, with net loss of $2,189,471 versus a net
profit of $127,903. Based on 15,173,653 shares outstanding, the Company lost
$0.14 per share for the nine months ending July 31, 1996 versus a gain of $0.01
per share based on 11,773,000 shares outstanding.
<PAGE> 10
Liquidity and Capital Resources
The Company's liquidity was materially effected by a one time charge of
$11,866,000 in research and development. Operating losses were $2,270,189 for
the three months ending July 31, 1996. Additionally, the Company's net cash
provided from continuing operations declined to $41,259 versus a gain of
$478,779 for the nine month period ending July 31, 1995.
The Company's capital was materially effected by reconciliation to the year
ended audited statements (October 31, 1995) and adjustments for the nine month
period ending July 31, 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 and to take certain
charges to earnings as discussed above.
The Company has issued a news release dated June 6, 1996 which declared a 100%
stock dividend of the Cyberlinx Corporation and the transferring of all
non-financial service and processing activities. To date, the distribution has
not been made to the Company's shareholders. The Company has issued its
ownership for distribution to the Company's shareholders to the management of
Cyberlinx Corporation. Therefore, Cyberlinx is operating separately of
Sinclare.
Other Transactions
On May 3, 1996 the company formed Cyberlinx Corporation ("Cyberlinx") as a
wholly-owned subsidiary as a means of segregating non-financial Internet
Services. For 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.
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 licensing 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
<PAGE> 11
common stock valued at $2,078,400. In addition, royalty payments are required
at the rate of 10% of gross revenues up to $5 million, with a decreasing rate
from 8% to 2% of gross revenues income between $5 million and $50 million and
over, payable monthly. 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 shareholders 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 rights, 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 5% of gross revenues with the first payment
deferred until $1 million in gross revenue 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 a decreasing rate from 8% to 2% of
gross revenues income between $5 million and $50 million and over, payable
monthly.
<PAGE> 12
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> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> (1,071)
<SECURITIES> 0
<RECEIVABLES> 296,879
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 295,808
<PP&E> 382,852
<DEPRECIATION> 152,469
<TOTAL-ASSETS> 687,214
<CURRENT-LIABILITIES> 490,168
<BONDS> 122,230
0
0
<COMMON> 15,949
<OTHER-SE> 58,867
<TOTAL-LIABILITY-AND-EQUITY> 687,214
<SALES> 106,373
<TOTAL-REVENUES> 106,373
<CGS> 39,682
<TOTAL-COSTS> 39,682
<OTHER-EXPENSES> 2,411,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,345,189)
<INCOME-TAX> (75,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,270,189)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
