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Previous: LORAL SPACE & COMMUNICATIONS LTD, 11-K, EX-23, 2000-06-27 |
Next: VERSENT CORP, 20-F, EX-2, 2000-06-27 |
United States
Securities and Exchange Commission
Washington DC 20549
Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (Fee Required)
or
þ
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required)For the fiscal year ended: December 31, 1999
or
Transition Report to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from: to:
Commission file number:
Versent Corporation
(exact name of registrant as specified in its charter)
Province of Ontario, Canada
(jurisdiction of incorporation or organization)
3269 American Drive
Mississauga, Ontario
L4V 1N4 CANADA
ph: (905) 678-7272 fax: (905) 678-9898
(address of principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares
(title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
As at December 31, 1999 Laser Quest Corporation had 9,268,343 common shares outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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.
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 þ Item 18
Table of Contents
Part I
Item 1. Description of Business ......4
Item 2. Description of Property ......11
Item 3. Legal Proceedings ......15
Item 4. Control of Registrant ......16
Item 5. Nature of Trading Market ......17
Item 6. Exchange Controls and Other Limitations Affecting Security Holders ......18
Item 7. Taxation ......19
Item 8. Selected Financial Data ......20
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......21
Item 10.Directors and Officers of Registrant ......26
Item 11. Compensation of Directors and Officers ......28
Item 12. Options to Purchase Securities from Registrant or Subsidiaries ......33
Item 13. Interest of Management In Certain Transactions ......34
Part II
Item 14. Description of Securities to be Registered ......35
Part III
Item 15. Defaults Upon Senior Securities ......36
Item 16. Changes in Securities and Changes in Security for Registered Securities ......37
Part IV
Item 17. Financial Statements ......38
Item 18. Financial Statements ......39
Item 19. Financial Statements and Exhibits ......55
Signature ......56
Part I
Item 1. Description of Business
Versent Corporation ("Versent") is a market leader in two distinct industry sectors. Through its Laser Quest Division ("Laser Quest"), Versent is the dominant multi-location operator of laser tag centres in Canada and the United States. Laser Quest is North America's premier laser adventure concept, offering players an outstanding entertainment experience. More than five million Laser Quest games are played every year in its 57 corporate owned Laser Quest Centres ("LQ Centres").
Through its Laser Cash Division ("Laser Cash"), Versent is one of the largest distributors and operators of automated banking machines ("ABMs") in Canada's rapidly growing private label ABM industry.
Together, Versent's two core divisions combine to provide the Corporation with strong cash flows and opportunities for long term growth.
On February 15, 2000 Buckingham Technology Acquisition Group, Inc. ("Buckingham") acquired 6,649,152 shares bringing its holdings to 8,497,152 or 90.5% of the issued and outstanding shares of Versent. Versent's new controlling shareholder is committed to profitably growing both the Laser Quest and Laser Cash businesses.
Versent's registered head office is located at 3269 American Drive, Mississauga, Ontario, L4V 1V4. Its shares are listed for trade on the Toronto Stock Exchange under the symbol VTC.
History
Leisure Quest Entertainment Inc. ("LQE"), a private company, was incorporated under the laws of Canada by Articles of Incorporation dated March 22, 1992. In June 1992 LQE was introduced to the Laser Quest concept in England and shortly thereafter, became the Master Licensee for the concept in Canada. In November 1992, LQE entered into a Master License agreement with Laser Quest UK Ltd. ("LQUK") for 17 States in the United States of America. This was replaced in January, 1994 with a joint agreement with LQUK to develop the concept throughout the United States and Mexico through Leisure Entertainment Corp. ("LEC").
The Corporation has entered into an agreement, through its wholly owned subsidiary LQI with LQUK, a corporation controlled by a Director of the Corporation (who as of December 31, 1999 held 8.5% of the outstanding common shares of the Corporation) pursuant to which LQUK provides consulting services to LQI on an indefinite basis.
LEC was incorporated under the laws of the State of Delaware in December, 1992 with an authorized share capital of 3,000 common shares with a par value of US$0.01 per common share. On January 3, 1994, LEC increased its authorized share capital to 3,750,000 common shares and issued 3,747,000 common shares from treasury for net proceeds of US$538,000 plus the value ascribed to the Laser Quest rights. On February 2, 1994, LEC further increased its authorized share capital to 10,000,000 common shares and split the issued and outstanding shares on a two for one basis. On February 7, 1994, 2,500,000 common shares were issued from treasury in a private placement for net proceeds of US$2,434,189.
On February 22, 1994, the shareholders of LQE concluded an agreement with Kingscross Resources Inc. ("KCR"), which was publicly traded on the Canadian Dealer Network, whereby KCR acquired 100% of the outstanding common shares of LQE in exchange for 11,835,000 common shares of KCR on a post-amalgamated basis. The effect of this transaction was that while KCR became the legal parent of LQE, the former shareholders of LQE received greater than 50% of the shares of KCR.
Concurrent with this, 1057251 Ontario Inc. ("Ontco"), a private company incorporated under the laws of the Province of Ontario, issued, by private placement, 4,187,500 shares for cash consideration of CDN$1,585,000 (net proceeds CDN$1,340,000) and amalgamated with KCR to form Laser Quest Corporation ("the Corporation"). Ontco shares were exchanged for the Corporation's shares on a one-for-one basis, while KCR shares were consolidated on a 3.2:1 basis prior to being exchanged for the Corporation's shares on a one-for-one basis.
Also on February 22, 1994, Willcrest Limited, a shareholder of LQE, subscribed for 16 special share units of the Corporation for a total subscription cost of CDN$2,000,000, the net proceeds of which were used to reduce LQE's bank indebtedness.
The Corporation secured a listing of its common shares on the Alberta Stock Exchange (the "ASE") on April 13, 1994 and on the Toronto Stock Exchange in August 1996 and is a reporting issuer in both Ontario and Alberta.
On June 30, 1994, the Corporation concluded an agreement with the shareholders of LEC to acquire the balance of the outstanding shares of LEC (62.5%) not already controlled by the Corporation. The transactions involved the issue of 9,918,750 Common Shares of the Corporation.
In August, 1994 the Corporation acquired the rights to market and develop the Laser Quest concept in Central and South America and replaced the existing Master License arrangement in Canada with an irrevocable license. Then in November, 1994, the Corporation acquired the remaining world-wide rights to the Laser Quest concept through its wholly-owned subsidiary LQI. These rights are owned by LQI, which is controlled by the Corporation. The Master License Arrangements held by LQC in Canada and LEC in the US are permanent. The European Licenses are held by LQUK which is not controlled by the Corporation. The remaining Master License territories throughout the rest of the world are held by LQI. When granted, the purchaser receives the exclusive right to market and license all aspects of the Laser Quest concept in their specific territory. All Master Licensees outside of North America, are subject to minimum performance standards established prior to the granting of their Licenses. Licenses may be forfeited if minimum performance standards have not been met.
On July 28, 1995 the 16 Special Shares held by Willcrest Limited were each converted into 384,375 Common Shares for a total of 6,150,000.
On June 14, 1996, the Corporation purchased all of the shares of Starburst Coin Machines Inc. ("SCM"), a coin operated amusement machine company. The purchase was made with a combination of $1,400,000 and the issuance of 1,272,727 common shares of the Corporation. The purchase of SCM allows the Corporation to provide its own video arcade machine requirements for both existing and future LQ Centres throughout North America.
In July 1996 the Corporation secured a listing of its common shares on The Toronto Stock Exchange (the "TSE") and subsequently voluntarily delisted off the ASE.
On December 20, 1996 the Corporation concluded an agreement with the shareholder of Game Time Amusements Ltd. ("Game Time") to acquire all of the outstanding shares of Game Time for cash plus Common Share consideration.
On January 10, 1997 the Corporation finalized the purchase of 100% of the outstanding shares of Threshold Electronics Limited, the U.K. based ISO9001 company which has designed and manufactured Laser Quest's proprietary equipment since 1989. The Corporation has completed the process of replicating the operation at the Corporation's new home office facility in Mississauga, Ontario.
On February 13, 1997, the Corporation closed a private placement of 10,715,000 Special Warrants at a price of $1.40 per warrant for gross proceeds of $15,001,000. Each special warrant was convertible into one Common Share of the Corporation for no additional consideration for a period of one year. The capital raised was intended to fund an accelerated roll out of LQ centres and finance the acquisition strategy of the coin-operated amusement machine division.
From January 24, 1997 through December 31, 1997 a total of 1,078,750 Common Share purchase options were exercised for total proceeds of $929,500.
On September 20, 1997, November 5, 1997 and November 20, 1997, the Corporation concluded the acquisition of three previously franchised Laser Quest centres in Calgary, Mississauga, and Montreal respectively bringing the total corporately owned centres in Canada to eleven.
On December 4, 1997 the Corporation announced that the Toronto Stock exchange had accepted for filing a Notice of Intention to Make a Normal Course Issuer Bid for the common shares of the Corporation.
On February 19, 1998 the Shareholders of the Corporation approved the consolidation of the Company's shares on a one for five bases. At the same time a change in the company's name to Versent Corporation was approved.
On March 31, 1998 the Corporation concluded the acquisition of Chromacolour Holdings Limited (Chromacolour) the world's leading supplier of specialized paint, paper, and related products to the animation industry. The purchase was made with a combination of cash and approximately 300,000 Versent shares.
On August 21, 1998 the Corporation through a 91% owned subsidiary, concluded the acquisition of certain assets and assumed certain liabilities of Color Me Mine Inc. The consideration was cash.
On May 4, 1999 the Corporation sold all of its shares of Starburst Coin Machines Inc. to a management group led by Starburst's founder and President. The sale was made for a combination of cash and a vendor take back note.
On December 9, 1999 the Corporation announced the sale by its wholly owned subsidiary Leisure Entertainment of its 91% interest in Color Me Mine Enterprises, Inc. to private investors.
On February 15, 2000 Buckingham Technology Acquisition Group, Inc. purchased 6,649,152 shares of Versent bringing its ownership to 8,497,152 shares representing 90.5% of the issued and outstanding shares. Buckingham is owned 100% by Mr. Jerry Zucker of Charleston, South Carolina.
On April 27, 2000 the Corporation announced that it has completed the sale of substantially all of the assets of its Chromacolour business through two separate transactions. The UK operation was sold to a company jointly controlled by Mr. David H. James, a director of the Corporation, and an unrelated partner. The Canadian based business was sold to a company jointly controlled by Mr. James and a different unrelated partner.
The Laser Quest Laser Tag Concept
Game Description
Laser Quest is a laser adventure game offering players an interactive entertainment experience. The 15-20 minutes spent in the unique Laser Quest arena is totally immersive, and both mentally and physically challenging. As such, the experience has broad demographic appeal and is suitable for individuals, families, parties, leagues and corporate groups. The object of Laser Quest is to get as many points as possible, either individually or as a team, by hitting opposing targets or capturing the other team's headquarters.
The custom-designed computer energized packs worn by players consist of a Laser, as well as front, back and shoulder LED targets. When fired, the Laser emits both a invisible infrared and a visible red laser beam. A successful target hit is indicted by vibration, LED colour change and deactivation of the hit players pack. Points are scored for hits to the pack target areas and to the laser. During the game, details of the scoring as it occurs are communicated to players and each player's score is transmitted to the central game computer. At the end of the game each player receives a personalized scorecard detailing individual player statistics and scores, as well as team scores if a team game was played.
Description of Premises
Each Laser Quest centre is divided into three areas: Foyer/Reception, Briefing Room "Airlock", and Arena. The airlock and arena areas are designed to reflect a futuristic or fantasy-like escape from reality. Arena dimensions and design are critical to generating repeat business and ensuring the long term appeal of the game. Considerable time, effort and capital is spent to create the right environment and experience.
The foyer/reception area includes a ticket counter and various arcade and video games which represent an additional source of revenue while players wait to play the game. Also included in the foyer are washrooms, an office, staff lounge, storage room, vending machines, and a group meeting or party room.
The airlock or outfitting room is where players don the specially designed laser packs which are activated by the Laser Quest computer. The airlock serves as the entrance to and exit from the arena. Prior to entering the arena, Laser Quest staff assist players with their equipment and brief players on the game rules or "code of honor". Laser Quest staff members enter the arena with the players for the duration of the game to act as game marshals.
The arena is a specially designated multi-level play area, styled after a science fiction inspired labyrinth or maze with custom-built scenery and props, ramps and catwalks, specialty lighting, swirling fog and energizing music.
Site Selection Criteria
Laser Quest believes that the most successful site locations are reasonably close to city centres, high schools, colleges, shopping centres and other leisure attractions. Desirable locations are also near major retail districts or a major shopping centre, with proximity activities (i.e. cinemas, night clubs, recreational facilities).
Other factors which determine a suitable location include adequate parking and easy site identification - through either quality signage and street access or linkage opportunities with known retail or amusement establishments (i.e. across from a branded fast food restaurant).
Operations
Games last approximately fifteen minutes with a five minute changeover period between games for instruction and outfitting of players. Players can make reservations by telephone or in person on the day they wish to play or alternatively, just walk in and take the first open spot. Game sites are rented on a hourly basis to members and groups and can be made available outside the regular operating hours.
Game Price and Payment
The price of a solo game ranges between $5.00 and $8.00 depending on the local market. Hourly rental rates vary depending on the requirements of the group, time of booking, and the number of packs available. Reservations for groups of six or more and hourly rentals are held with a cash deposit with the cash balance payable prior to the scheduled reservation.
Hours of Operation
Game sites are available for business 7 days per week, 52 weeks per year. Operating hours vary but generally Laser Quest Centres are open during evenings through the week with expanded hours on weekends. During vacation periods, many centres go to expanded hours during the week as well. Outside of normal operating hours, private bookings and other special events are accommodated.
External Financial Control and Database Management
The Company is able to exhibit a reasonable degree of financial control over game site locations through remote interrogation of game site computers and the reconciliation of game and point-of-sale computers. All games, pricing and related information must be loaded into the on-site computer before the equipment is activated. Downloading this information on a weekly basis provides management with key financial and market data to monitor site performance and control franchise location royalty reporting.
Threshold Electronics Limited
Threshold Electronics focuses its energies in two distinct business directions. On the one hand, Threshold functions as a cost centre within Versent to support the highly successful Laser Quest game technology. In fact, Threshold developed the technology and now designs, manufactures and services Laser Quest's equipment in the Corporation's Mississauga home office. In this key role, Threshold has implemented significant changes to its service programs, parts inventory systems and warehousing capabilities, resulting in increased responsiveness to Laser Quest's growing needs. As well, Threshold engineers continually work to improve the performance and reliability of the game technology. As the game of laser tag continues to grow in popularity and exposure through Laser Quest's success and planned expansion, the demand for high-performance equipment will likewise increase. Concurrently, Threshold engineers continually work to improve the performance and reliability of the game technology. As the game of laser tag continues to grow in popularity and exposure through Laser Quest's success and planned expansion, the demand for high-performance equipment will likewise increase. Concurrently, Threshold provides a broad technology platform from which Versent can pursue new businesses and markets. The division is exploring a number of promising opportunities to apply its technological know-how. With so many of today's recreation, entertainment and related industries dependent on technology, the door is wide open to possibilities that can offer profitable new revenue streams.
Automated Banking Machine Business - "Laser Cash"
Threshold, a wholly-owned subsidiary of Versent, is a specialty electronics design and manufacturing company which was formed to primarily manufacture and service Versent's Laser Quest equipment. In 1997, Threshold sought to leverage its expertise in computer systems and electronics through new business opportunities. In early 1998, responding to a changing regulatory environment, Threshold created the Laser Cash division to participate in the emerging private label automated banking machine industry. Since then Laser Cash has become one of the largest distributors and operators of full-service private label automated banking machines in Canada.
Laser Cash's size, technical expertise and more importantly, its financial stability, has positioned it as one of the leading non-financial institutions active in the industry. Laser Cash currently has an installed base of over 400 ABMs and is one of only three independent ABM operators with a national presence across Canada.
Development of the Industry
Prior to 1996, electronic banking in Canada was supported by the Interac Association ("Interac"), an association made up of only the major banks and credit institutions in Canada. One of the benefits for consumers developed by Interac was the cross-supporting of customer cash withdrawal transactions amongst various members of the ABM networks. In late 1996, Interac was directed by the Government of Canada to open its monopoly over the automated banking machine industry and underlying shared cash network to non-financial organizations. This new regulation allowed for the creation of the independent or "white label" ABM industry.
In the year following de-regulation, industry participants (consisting of machine manufacturers, armoured car services, switch providers, the banks and Interac) began positioning themselves to effectively supply, service and develop this new market. Switch providers had to become approved by Interac, ABM machines had to be certified by the switch providers, and the computer networks had to be modified to accommodate new entrants.
By late 1997, Canada's first white label ABM was deployed. In February 1998, Laser Cash placed its first ABM into service. Since that time, Laser Cash has placed over 400 ABM machines in select locations across Canada. The majority of Laser Cash's ABMs are in Ontario, however Laser Cash has made significant progress with market penetration in Quebec, Manitoba, Saskatchewan, Alberta and British Columbia. Through trial and error and improved location analysis, Laser Cash has established a high quality network.
Industry Growth
At the end of 1997 there were approximately 19,000 ABMs in Canada; 74% of these were provided by Canada's six major banks, and the balance were provided by the various trust companies, credit unions and foreign banks. None were provided by non-financial institutions. By May 31, 1999 the number of ABMs in use in Canada had grown by 28% to approximately 24,400 machines, and over half of these new units were estimated to be third party ABMs. Since April 1998, more than 10 new ABM equipment vendors have entered the market and between 50 and 100 equipment deployers or ISO's.
Initial Market Strategy
In its first six months of operation Laser Cash concentrated on owner-operated locations. Laser Cash chose this strategy to best achieve rapid market penetration while matching location demand with available ABM equipment. To assist in sourcing locations, Laser Cash utilized independent sales agents with demonstrated access to these typically lower volume sites.
Laser Cash's initial ABM platform was a Triton manufactured model. The Triton unit is best suited to locations that have transaction volumes under 2,000 per month because of the dial-up technology employed and the unit's limited ability to hold significant cash inventory. Recently, larger faster machines have become available from manufacturers such as NCR, Diebold and Wincor-Nixdorf.
The size and sophistication of Laser Cash's network has well positioned it to enter an expanded phase of the business targeting multi-unit corporate locations over the next several years. The scale of Laser Cash's operation has necessitated the development of sophisticated MIS solutions that are critical to both efficient operations and distinguishing Laser Cash from its competitors.
Financial Operations
Significant Currencies
The corporation currently conducts a significant amount of its regular business in US and Canadian dollars. The Corporation reports its financial results in Canadian dollars.
Foreign Exchange Hedging Activities
The Corporation did not engage in hedging activities in 1999 since the Corporation's various international operations provided reasonably natural hedges. The situation is reviewed regularly to determine whether hedging activities may be required in the future.
Breakdown of Sales
The Corporation operates in two continuing industry segments. The "Laser Quest" segment derives revenue from LQ Centre operations in North America and the licensing of the concept internationally. The "Laser Cash" segment derives revenue from the operation and distribution of private label automated banking machines.
See note 15 to the 1999 Financial Statements.
External Factors
Laser Tag
The Corporation operates in a relatively small industry. This industry is characterized by a number of single-location operations. Accordingly, the Corporation does not believe a significant laser tag competitive threat currently exists, or will emerge, to challenge Laser Quest's leadership position in the laser tag game business. Furthermore, the Corporation is not subject to supply-shock, labor shortages or overly-burdensome government regulation. The remaining world-wide rights acquired by the Corporation are in perpetuity. Consequently, the Corporation does not believe there exists any significant external threat to its current or future financial performance.
Private Label ABMs
The private label ABM industry is a new industry in Canada. It is difficult to assess the external factors affecting the industry as it is still very much in development. However, the Corporation does not believe that there are any significant short-term threats to the current or future financial performance of the division.
Item 2. Description of Property
The Corporation owns the intellectual property and trademarks for Laser Quest.
The Corporation's home office is in leased premises in Mississauga, Ontario.
The Corporation's international operations are carried out by LQI which is based in Barbados.
North American Locations
The following table indicates the current location of Laser Quest Centres in Canada and the U.S. and the date each LQ Centre was opened. All of the LQ Centre's are corporately owned with the exception of Oshawa ON which is licensed. The Corporation leases all of its premises, except in London ON where Versent owns the building.
Canada - 11 Centres
Location |
Opening Date |
|
1224 Dundas Street East, Units 8 and 9 Mississauga, ON |
17-Apr-93 |
|
9827 Horton Road S.W., Building #2 Calgary, AB |
21-Sept-93 |
|
149 Carling Street London, ON |
03-Dec-93 |
|
9625 Yonge Street, Unit 3 Richmond Hill, ON |
26-Feb-94 |
|
1800 St. Laurent Boulevard, Unit A Ottawa, ON |
11-Mar-94 |
|
10 Hesse Bay Regina, SK |
14-May-94 |
|
1226 St. Catherine St. West Montreal, PQ |
17-June-94 |
|
255 King Street West Kitchener, ON |
22-Oct-94 |
|
241 Clarence Street, Units 1 and 2 Brampton, ON |
25-Feb-95 |
|
10829-105th Avenue Edmonton, AB |
03-Mar-95 |
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1980 Eglinton Avenue East Scarborough, ON |
08-Apr-95 |
USA - 46 Centres
|
Location |
Opening Date |
|
224 Bolivar Street Lexington, KY |
19-Nov-93 |
|
12 North 19th Street Richmond, VA |
5-Nov-94 |
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5323-A E. Independence Blvd. Independence Promenade Charlotte, NC |
03-Dec-94 |
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West 202 Second Avenue Spokane, WA |
17-Dec-94 |
|
166 Second Avenue North Nashville, TN |
25-Mar-95 |
|
31401 John R. Road Madison Heights, MI |
12-May-95 |
|
7202 South 900 East Hillcrest Plaza Shopping Centre Midvale, UT |
23-Jun-95 |
|
Boman Acres Shopping Center 2909 South Sheridan Road Tulsa, OK |
07-Jul-95 |
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80 Brookmont Drive Montrose, OH |
22-Sept-95 |
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8988 East Hampden Avenue Village Square East Shopping Center Denver, CO |
29-Sept-95 |
|
606 Embassy Oaks, Suite 200 San Antonio, TX |
17-Nov-95 |
|
3335 West Peoria Phoenix, AZ |
17-Nov-95 |
|
2035 S. Alma School Road Fiesta Palms 1 Shopping Center Mesa, AZ |
08-Dec-95 |
|
14517 Potomac Mills Road Woodbridge, VA |
22-Dec-95 |
|
13711 Westheimer Road, Unit H West Oaks Shopping Center Houston, TX |
14-Jun-96 |
|
Poplar Plaza Shopping Center 3417 Poplar Avenue Memphis, TN |
28-Jun-96 |
|
1400 Shoreline Blvd., Unit C2 Mountain View, CA |
02-Aug-96 |
|
Highland Mall Shopping Center 523 Highland Mall Blvd., Suite 100 Austin, TX |
30-Aug-96 |
|
Brittany Center 2120 N. Woodlawn, Suite 470 Wichita, KS |
18-Oct-96 |
|
1605 North Academy Blvd. Rustic Hills North Shopping Center Colorado Spring, CO |
22-Nov-96 |
|
8083 Kingston Pike Knoxville, TN |
06-Dec-96 |
|
1524-C Butterfield Road Finley Square Shopping Center Downer's Grove, IL |
06-Dec-96 |
|
293 Executive Parkway Rockford, IL |
13-Dec-96 |
|
Ridgemont Plaza 2833 West Ridge Road Greece, NY |
20-Dec-96 |
|
48 E. Herndon Avenue Fresno, CA |
20-Dec-96 |
|
Champions Village Shopping Center 6560 FM 1960 West Houston, TX |
07-Mar-97 |
|
Shopper's Fair Shopping Center 6802A "P" Street Lincoln, NE |
14-Mar-97 |
|
Wyomissing Industrial Park 1035 Bern Road, Building 25 Wyomissing, PA |
14-Mar-97 |
|
7277 Nankin Blvd. Westland, MI |
04-Apr-97 |
|
4240 West Wisconsin Avenue Grand Chute, WI |
11-Apr-97 |
|
Fullerton Town Center 229 E. Orangethorpe Ave. Fullerton, CA |
02-May-97 |
|
7601 Grapevine Hwy, Suite 111 North Richland Hills, TX |
16-May-97 |
|
6420 NW Loop 410 The Village at Ingram Park San Antonio, TX |
23-May-97 |
|
33800 Gratiot Ave. Clinton Township, MI |
20-Jun-97 |
|
4712 Everhard Rd. N.W. Complex Canton, OH |
20-Jun-97 |
|
2100 Standiford Ave., Bldg. D Modesto, CA |
25-Jul-97 |
|
201 East Alex-Bell Road Cross Point Shopping Center Centerville, OH |
15-Aug-97 |
|
2101AN. University Drive Sunrise, FL |
15-Aug-97 |
|
2210 South 320th Street, Unit A4 Sea Tac Plaza Federal Way, WA |
29-Aug-97 |
|
626 & 644 East Rand Road Southpoint Shopping Center Arlington, Heights, IL |
03-Oct-97 |
|
2661 29th St. SE, Suite D Grand Rapids, MI |
14-Nov-97 |
|
Endicott Plaza, 139 Endicott St. Danvers, MA |
19-Dec-97 |
|
100 West Bay Area Blvd. Bay Area Square Shopping Center Webster, TX |
24-Jul-98 |
|
10944 North May Ave. Quail Plaza Shopping Center Oklahoma City, OK |
14-Aug-98 |
|
Ames Plaza, 3005 Berlin Turnpike Newington, CT |
13-Nov-98 |
|
7361 West Lake Mead Blvd., Lake Mead Pavillion, Suite 100 Las Vegas, NV |
29-Jan-99 |
Item 3. Legal Proceedings
There are no material legal proceedings involving the Corporation.
Item 4. Control of Registrant
The authorized capital of the Corporation consists of an unlimited number of Common Shares and Special Shares. As of December 31, 1999, there were 9,268,343 Common Shares outstanding.
The following table sets out, as at May 12, 2000, each person who is known to the senior officers or directors of Versent to beneficially own, directly or indirectly, or to exercise control or direction over, more than 10% of the outstanding common shares of Versent:
|
Name and Address |
Number of Common Shares Owned |
Percentage of Common Shares |
|
Buckingham Technology Acquisition Group Inc. South Charleston SC |
8,497,152 |
90.5% |
As at May 12, 2000 the officers and directors of Versent as a group beneficially owned, directly or indirectly, or exercised control or direction over 9,300 common shares representing less than 0.1% of the aggregate number of common shares of Versent then outstanding.
Item 5. Nature of Trading Market
The Common Shares of the Corporation were listed on the Toronto Stock Exchange in July 1997 (trading symbol LQC). Effective February 19, 1998, the Corporation changed its name to Versent Corporation and the trading symbol was changed to "VTC".
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
There are no governmental laws, decrees or resolutions in Canada restricting the ownership of shares by non-residents or, other than withholding taxes, remittance of interest, dividends or other payments to non-resident holders of Common Shares of the Company. Furthermore, there are no limitations on the right of non-resident or foreign shareholders to vote the Corporation's securities.
Item 7. Taxation
Dividends paid by the Corporation on shares owned by non-residents of Canada are subject to Canadian withholding tax. The general rate of Canadian withholding tax on dividends under the Canadian Income Tax Act is 25%. However, Article X of the reciprocal tax treaty between Canada and the United States limits this rate to 15% for United States residents. Also under this treaty, the rate is further limited to 10% if the beneficial owner of the shares is a United States corporation which owns at least 10% of the voting shares of the Corporation.
If the beneficial owner of the shares carries on a business in Canada through a permanent establishment in Canada, the dividends are normally taxable in Canada as business profits at rates which may exceed the 10% or 15% rates applicable to dividends not connected with a Canadian permanent establishment.
A capital gain realized on the disposition of Common Shares by a resident of the United States will not be subject to Canadian tax unless the Common Shares held are defined as "taxable Canadian property". In general, the Common Shares will be "taxable Canadian property" if the United States resident used the Common Shares in carrying on business in Canada or if, at any time during the five year period immediately preceding the realization of the gain, not less than 25% of the issued and outstanding shares of any class or series of shares of the Corporation belonged to the particular United States resident. Relief is available if the Common Shares do not relate to a permanent establishment the United States resident had in Canada and if no more than 50% of the value of the shares of the Corporation was derived from real property situated in Canada.
Item 8. Selected Financial Data
The following selected financial data for the Corporation and its predecessors is presented in accordance with generally accepted accounting principles in Canada which, as applied by the Corporation, does not materially differ from generally accepted accounting principles in the United States.
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(CDN$) |
December 31, 1999 |
December 31, 1998 |
December 31, 1997 |
Eleven months ended December 31, 1996 |
January 31, 1996 |
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Corporate Operating Results |
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|
|
Revenues from continuing operations |
46,679,000 |
44,028,000 |
36,748,000 |
19,742,000 |
14,905,000 |
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
(5,400,000) |
402,000 |
1,968,000 |
1,180,000 |
224,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Financial Position |
|
|
|
|
|
|
Total assets of continuing operations |
41,046,000 |
56,519,000 |
44,818,000 |
32,330,000 |
23,307,000 |
|
Shareholders' equity |
13,683,000 |
34,682,000 |
34,478,000 |
15,657,000 |
12,353,000 |
|
Long term obligations |
23,056,000 |
25,650,000 |
10,114,000 |
12,061,000 |
8,567,000 |
|
|
|
|
|
|
|
|
Per share information: |
|
|
|
|
|
|
Earnings (Loss) per share from continuing operations |
($0.58) |
$0.04 |
$0.23 |
$0.17 |
$0.04 |
|
Dividends |
nil |
nil |
nil |
nil |
nil |
|
|
|
|
|
|
|
|
US/Canadian dollar exchange rate: |
1.4433 |
1.5333 |
1.4305 |
1.3706 |
1.3734 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS
Overview
Versent Corporation ("Versent") operated in two continuing segments in 1999:
Versent discontinued operations in two other segments during the year:
Continuing Operations
Laser Quest
Financial Highlights |
|
1999 |
|
1998 |
Revenues |
$ |
40,682,519 |
$ |
42,826,716 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Operating and cost of sales |
|
29,599,736 |
|
27,274,917 |
Administrative |
|
3,425,098 |
|
5,615,322 |
Earnings before interest and amortization ("EBITDA") |
|
7,657,685 |
|
9,936,477 |
Interest |
|
2,661,901 |
|
1,582,878 |
Amortization |
|
9,002,144 |
|
6,915,654 |
Income (Loss) from operations |
$ |
(4,006,360) |
$ |
1,437,945 |
Laser Quest revenues decreased $2,144,197 or 5% and EBITDA declined 23%. Laser Quest operating profits (revenues less operating expenses and cost of sales) decreased $4,469,016 or 29% to $11,082,783 (1998 - $15,551,799). The operating margin declined to 27% (1998 - 36%) of revenue. Administrative expenses were reduced by $2,190,224 or 39% mostly related to reduced Versent corporate overheads.
Increased weighted average corporate-wide debt and significant increases in interest rates and financing fees resulted in increased interest expense charged to Laser Quest. Amortization increased $2,086,490 or 30%, which is largely due to accelerated amortization resulting from the closing of two LQ Centres and the write down of certain deferred costs. At December 31, 1999 there were 57 corporately owned LQ Centres in North America versus 58 as of December 31, 1998. On a weighted average basis 58.2 LQ Centres (1998 - 55.0) were open throughout the year.
Management anticipates a program of limited growth in 2000 and its principal focus will continue to be on maximizing the financial performance of the existing LQ Centres.
Laser Cash
The private label ABM segment operating under the "Laser Cash" brand has developed a network of approximately 400 ABMs, making it one of the largest private label ABM networks in Canada. The Laser Cash segment began operations in the spring of 1998, but it was not until later in that year that the business began emerging from its start-up phase, making 1999 its first full year of operation. Laser Cash produced $5,996,286 (1998 - $1,201,202) or 13% (1998 - 3%) of continuing operations revenue. This segment exceeded expectations by posting positive EBITDA in 1999 of $481,230 (1998 - loss of $99,908).
At December 31, 1999 the private label ABM business accounted for $3,793,270 (1998 - $10,149,752) or 9% (1998 - 18%) of Versent's continuing assets. The significant reduction in investment was achieved by re-financing the ABM cash float.
Discontinued Operations
Coin-operated amusements
On May 4, 1999 Versent sold all of the shares of Starburst Coin Machines Inc. ("Starburst") to a Starburst management group led by Starburst's founder and President. While the sale resulted in a substantial loss on Versent's investment in the business, the business had been profitable since it was acquired in 1996 on an operating basis. The on-going capital requirements of Starburst at a time when Versent was seeking to reduce its debt prompted the decision to sell the company. Versent continues to utilize the services of Starburst in most of its LQ Centres.
Crafts
Versent's entry into the Crafts segment was not successful. The acquisitions of Chromacolour and Color Me Mine in 1998 resulted in significant losses for Versent in 1998 and into 1999 thereby prompting Versent to sell the businesses. In early December 1999 Color Me Mine was sold and Chromacolour was subsequently sold in early 2000. Both disposals resulted in significant investment losses in addition to the operating losses incurred during the time the businesses were owned by Versent.
Management's Analysis - Financial Condition
Non-Cash Working Capital
The net non-cash working capital position of Versent's continuing operations at December 31, 1999 was ($742,332) versus $1,490,648 at the previous year-end. The largest component of this decrease of $2,232,980 was the recovery of $1,637,450 in income taxes paid in prior years. Versent's continuing operations are not dependent on significant investments in working capital and as such the decline is not of concern to management. Accounts payable and accrued liabilities were unusually high at December 31, 1999; this figure has subsequently been reduced to normal operating levels in line with the December 31, 1998 balance.
Net Investment in Discontinued Operations
In 1999 Versent decided to focus exclusively on the Laser Quest and Laser Cash businesses and took steps to divest all other businesses. At December 31, 1998 Versent had $19,700,790 invested in Coin-op and Craft businesses. At December 31, 1999 all that remains of these discontinued operations is $698,266 which is made up of a receivable related to the sale of coin-operated amusements in Dubai and the estimated net realizable value of the remaining Craft assets owned by Chromacolour.
Capital Assets and Deferred Costs
With only one LQ Centre opening in the year and two closings, Laser Cash's focus being more on the redeployment of assets than new expansion, and annual depreciation and amortization charges, the capital base of the continuing businesses declined in 1999. At December 31, 1999, $28,986,954 in net book value remained, down $9,385,052 from the previous year-end balance of $38,372,006.
Liquidity and Capital Resources
Net bank indebtedness at December 31, 1999 was $21,746,774 (1998 - $37,282,038). This represented a net reduction of $15,535,264 or 42%.
Versent refinanced its Laser Cash ABM float requirements thus significantly reducing the required investment in that business.
Versent has a $1,450,000 note receivable in connection with the sale of Starburst Coin Machines. The $580,000 first payment due on this note in May 2000 will be used to further retire debt. Proceeds from the sale of Chromacolour subsequent to the year-end were also used to retire debt.
Shareholders' Equity
As of December 31, 1999 there were 9,268,343 shares issued and outstanding, unchanged from the previous year end. An additional $108,000 was raised with the exercise of 120,000 options subsequent to year end, thus bringing the current issued and outstanding number of shares to 9,388,343. In connection with the subsequent February 15, 2000 takeover of Versent by Buckingham Technology Acquisition Group, Inc. all share options and warrants have been cancelled.
The deferred foreign currency exchange adjustment primarily reflects changes in exchange rates since the acquisition of the U.S. operations in 1994 and the subsequent changes in the net investment in the United States. Due to Versent's reduction in its net assets in the United States as cash flows were used to repay debt rather than reinvested coupled with the significant strengthening of the Canadian dollar in the year, the deferred foreign currency exchange adjustment decreased significantly in 1999.
Management's Analysis - Results of Operations
Operations
The two continuing business segments (Laser Quest and Laser Cash) recorded an operating contribution (revenue less cost of sales and operating expenses) of $12,596,935 or 27% of revenue (1998 - $15,499,086 or 35% of revenue). The decline was primarily due to increased costs and declining revenues in the Laser Quest segment.
Administrative expenses decreased 21% to $4,458,020 (1998 - $5,662,517) as Versent took steps to reduce overheads to bring them more in line with revenues. As such, administrative expenses were reduced to under 10% (1998 - 13%) of revenues.
Interest
Significantly higher interest rates and bank fees coupled with a higher average debt load resulted in an 82% increase in total interest expense charged to continuing operations of $3,079,342 (1998 - $1,692,754).
Amortization
Amortization grew to $9,657,215 (1998 - $7,277,210) due to the larger average investment in capital assets plus accelerated amortization resulting from the closing of two LQ Centres and the write down of certain other deferred costs. This figure is expected to decline considerably (approximating 1998 levels) in 2000 as a number of LQ Centres are at the stage where their equipment has been fully amortized.
Income (loss) before income taxes
The pre-tax loss from continuing operations was $4,597,642 (1998 - income of $866,605). The current year's loss includes a $971,248 non-cash charge to earnings in connection with the closing of two LQ Centres.
Income taxes
In spite of the pre-tax loss, Versent recorded income tax expense of $802,755 (1998 - $464,900) due to the non-recognition of certain loss carryforwards for accounting purposes and the fact that in certain foreign jurisdictions Versent's operations are taxable.
Net income (loss) from continuing operations
The net loss from continuing operations was $5,400,397 (1998 - income of $401,705). The loss per share was $.58 (1998 - earnings of $.04).
Net loss from discontinued operations
The operating loss from discontinued operations (Coin-operated amusements and Crafts) was $1,824,725 (1998 - $2,282,465). Losses on the sale of Starburst and Color Me Mine totalled $5,892,614 and a further charge of $1,950,000 was taken to reflect the net realizable value of the Chromacolour business.
Net loss
The net loss increased to $18,464,246 (1998 - $1,880,760). The loss per share was $1.99 (1998 - $.20).
Management's Analysis - Cash Flows
Operating activities
Funds from continuing operations decreased to $4,256,818 (1998 - $7,087,882). Still, cash flow from continuing operations per share (basic) was a healthy $0.46 (1998 - $0.75).
Versent realized $2,421,717 (1998 - ($1,392,269)) from non-cash working capital, primarily from the recovery of income taxes, resulting in $6,678,535 (1998 - $5,695,613) available for investing and financing activities.
Investing activities
Expansion of the Laser Quest concept was suspended in 1999 because of real estate market conditions, a lack of financing and the desire of management to focus on optimizing the performance of the existing LQ Centres. Growth in the Laser Cash business resulted more from redeploying existing machines to better locations, thus little capital was required. As a result, only $1,619,309 was invested in capital assets and deferred start-up costs versus $5,465,386 in 1998.
Financing activities
Versent was able to retire all $2,837,289 of its current bank indebtedness in 1999, leaving the $3 million operating line unused as at December 31, 1999. Versent also paid down $11,944,322 of term debt during the year.
Versent's term debt has been reduced to $20,937,934 as at March 31, 2000. In connection with the Buckingham bid, Management sought and obtained an interim extension of the existing financing arrangement to September 5, 2000. Although Versent has positive cashflows from continuing operations, current financial projections indicate that existing cash resources together with cash flows from operations will not be sufficient to fully discharge the obligation by that date. Management is currently in discussion with Versent's principal lender to renegotiate the existing financial arrangement and at the same time is actively pursuing alternate financing from other potential lenders. While it cannot be assured, Management believes they will be successful in obtaining replacement financing.
Discontinued operations
The negative net cash flow related to discontinued operations was $1,488,062 (1998 - $13,240,639). Proceeds from the sales of Starburst and Color Me Mine totalled $5,976,737 during the year while in the previous year, $3,219,706 was invested in the acquisitions of Chromacolour and Color Me Mine.
Item 10. Directors and Officers of Registrant
It is proposed that the seven persons named below be nominated for election as directors of Versent. All seven proposed nominees are now directors of Versent and have been since the dates set forth below. Management of Versent does not contemplate that any of the proposed nominees will be unable to serve as directors of Versent, but if that should occur for any reason prior to the Meeting, the persons named in the form of proxy accompanying this Circular have the right to vote for any other nominee of management of Versent. Each director will be elected to hold office until the close of the next annual meeting of the shareholders of Versent or until his or her successor is appointed or elected. The following table sets forth certain information as at May 12, 2000 concerning the persons nominated for election as directors of Versent:
|
Name and Municipality of Residence |
Positions Held |
Principal Occupation |
Director Since |
Number of Common Shares Owned(2) |
|
Michael J. Buckstein Toronto, Ontario |
Director(1) |
Chief Executive Officer, Barrday Inc., an industrial textile manufacturer in Cambridge, Ont. |
Feb. 15, 2000 |
Nil |
|
David H. James Spokane, Washington |
Director |
President, Laser Quest International Corporation |
1995 |
9,300 |
|
Robert B. Johnston North Charleston, South Carolina |
Director(1) |
Director of Investor Relations, Polymer Group Inc., an engineered materials company in North Charleston, S.C. |
Feb. 15, 2000 |
Nil |
|
Deborah Morrison Toronto, Ontario |
Director |
Administrative Director, the Historica Foundation of Canada, a private charitable foundation dedicated to promoting history education in Canada |
Feb. 15, 2000 |
Nil |
|
Jeffrey Rosen London, Ontario |
Director |
Instructor and Faculty Advisor at the University of Western Ontario |
Feb. 15, 2000 |
Nil |
|
David A. Rosenkrantz Toronto, Ontario |
Chairman and Director(1) |
Partner, Patica Corporation, an investment banking firm |
1994 |
Nil |
|
F. Gregory Thompson Toronto, Ontario |
President, Chief Executive Officer and Director |
President and Chief Executive Officer of Versent |
1994 |
Nil |
(1) Member of the Audit and Compensation Committee.
(2) Indicates number of common shares of Versent beneficially owned, directly or indirectly.
Each of the above individuals has held the principal occupation set forth above for the past five years except as follows: Mr. Johnston who until 1998 was a Senior Strategic Planner for Dominion Textile, Inc.; Deborah Morrison who prior to 2000 was Director of Communications and Development, The CRB Foundation; and Mr. Rosen who from 1996 to 1999 was a public educator in Monterrey, Mexico and in Toronto, Ontario prior to that.
The Officers of the Corporation are as follows:
Name Office Held Held Position Since
David A. Rosenkrantz Chairman and Director June, 1999
F. Gregory Thompson President and CEO and Director February, 1994
Clinton L Wolff, CA Vice President, Finance June, 1994
Secretary-Treasurer
Sue Millar Vice President, Human Resources
and Operations May, 1998
Tracy Boyd Vice President, Marketing April, 1999
Matthew McIver President, Threshold Electronics Limited January, 1997
Item 11. Compensation of Directors and Officers
The following table (presented in accordance with the regulation (the "Regulation") made under the Securities Act (Ontario)) sets forth all annual and long-term compensation for services in all capacities to Versent and its subsidiaries for the year ended December 31, 1999 (to the extent required by the Regulation) in respect of the individuals who were, at December 31, 1999, the Chief Executive Officer and the four other most highly compensated officers (the "Named Executive Officers"), whose total compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
|
Name and Position Held |
Year |
Annual Compensation |
Long-Term Compensation Awards |
|||
|
Salary ($) |
Bonus ($) |
Other Annual Compensation ($) |
Securities Under Options Granted (#) |
All Other Compensation ($) |
||
|
F. Gregory Thompson President and Chief Executive Officer |
December 31, 1999 |
175,000 |
Nil(1) |
Nil |
143,120 |
$70,000(2) |
|
December 31, 1998 |
175,000 |
Nil(1) |
Nil |
34,060 |
Nil |
|
|
December 31, 1997 |
175,000 |
44,147(1) |
Nil |
Nil |
Nil |
|
|
Matthew J. McIver President, Threshold Electronics Limited |
December 31, 1999 |
150,000 |
25,000(3)(1) |
Nil |
30,900 |
$81,890(4) |
|
December 31, 1998 |
150,000 |
Nil(1) |
Nil |
15,460 |
Nil |
|
|
December 31, 1997(5) |
135,577 |
27,361(1) |
Nil |
Nil |
Nil |
|
|
John Prudence(7) President, Chromacolour International Limited |
December 31, 1999 |
140,000 |
Nil |
Nil |
21,420 |
Nil |
|
December 31, 1998(6) |
126,849 |
Nil |
Nil |
Nil |
Nil |
|
|
December 31, 1997 |
n/a |
n/a |
n/a |
n/a |
n/a |
|
|
Clinton L. Wolff Vice-President, Finance and Secretary-Treasurer |
December 31, 1999 |
120,000 |
Nil(1) |
Nil |
24,620 |
Nil |
|
December 31, 1998 |
109,462 |
Nil(1) |
Nil |
10,720 |
Nil |
|
|
December 31, 1997 |
95,769 |
24,159(1) |
Nil |
Nil |
Nil |
|
|
Sue Millar Vice President, LQ Operations |
December 31, 1999 |
115,096 |
$6,860(8)(1) |
Nil |
45,140 |
Nil |
|
December 31, 1998 |
97,402 |
Nil(1) |
Nil |
5,940 |
Nil |
|
|
December 31, 1997 |
85,094 |
16,082 (1) |
Nil |
Nil |
Nil |
|
OPTION GRANTS DURING THE
MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table (presented in accordance with the Regulation) sets forth options granted during the financial year of Versent ended December 31, 1999 to the Named Executive Officers:
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
|
Name |
Securities Under Options Granted (# of Common Shares under option)) |
% of Total Options Granted to Employees in Financial Year |
Exercise Price ($/Security) |
Market Value of Securities Underlying Options on the Date of Grant ($/Security) |
Expiration Date D/M/Y |
|
F. Gregory Thompson President and Chief Executive Officer |
68,120 75,000 |
12.5% 13.8% |
$1.25 $1.49 |
$1.25 $1.49 |
27/5/2004 11/8/2004 |
|
Matthew J. McIver President, Threshold Electronics Limited |
30,900 |
5.7% |
$1.25 |
$1.25 |
27/5/2004 |
|
John Prudence(1) President, Chromacolour International Limited |
21,420 |
3.9% |
$1.25 |
$1.25 |
27/5/2004 |
|
Clinton L. Wolff Vice-President, Finance and Secretary-Treasurer |
24,620 |
4.5% |
$1.25 |
$1.25 |
27/5/2004 |
|
Sue Millar Vice-President, LQ Operations |
45,140 |
8.3% |
$1.25 |
$1.25 |
27/5/2004 |
The following table (presented in accordance with the Regulation) sets forth details of all exercises of options during the year ended December 31, 1999 by the Named Executive Officers and the value as of December 31, 1999 of unexercised options on an aggregate basis:
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR AND DECEMBER 31, 1999 OPTION VALUES
|
Name |
Securities Acquired on Exercise (#) |
Aggregate Value Realized ($) |
Unexercised Options at December 31, 1999 (#) Exercisable/Unexercisable |
Value of Unexercised in-the-Money Options at December 31, 1999 ($) Exercisable/Unexercisable |
|
F. Gregory Thompson President and Chief Executive Officer |
100,000 |
$70,000 |
177,180 / Nil |
$Nil / $Nil |
|
Matthew J. McIver President, Threshold Electronics Limited |
-- |
-- |
3,865 / 42,495 |
$Nil / $Nil |
|
John Prudence(1) President, Chromacolour International Limited |
-- |
-- |
Nil / 21,420 |
$Nil / $Nil |
|
Clinton L. Wolff Vice-President, Finance and Secretary-Treasurer |
-- |
-- |
2,680 / 32,660 |
$Nil / $Nil |
|
Sue Millar Vice-President, LQ Operations |
-- |
-- |
1,485 / 49,595 |
$Nil / $Nil |
In connection with the February 15, 2000 acquisition of the majority of shares of Versent by Buckingham Technology Acquisition Group, Inc., the Board approved the immediate vesting of all options for the purposes of allowing the shares to be tendered to the bid using the Share Appreciation Rights feature of the employee stock option plan. The Named Executive Officers received the following net realized value: F. Gregory Thompson $53,560; Matthew J. McIver $15,450; John Prudence $10,710; Clinton L. Wolff $12,310; and Sue Millar $22,570. All options not in-the-money under the bid price were cancelled; there are now no share options outstanding.
Compensation of Directors
Mr. David Rosenkrantz receives $84,000 per year in his capacity as Chairman of the Board. Each director who is not an employee or officer of Versent or who does not provide consulting services to Versent is entitled to be paid as follows: $2,500 per annum for services as a director; $500 per member for each meeting of the Board; $1,500 per annum if acting as chairman of a committee of the Board for services in such capacity; and $500 per member of a committee of the Board for services in that capacity per meeting attended.
During the financial period ended December 31, 1999, the following options were granted to the indicated individuals in their capacity as directors of Versent to acquire common shares of Versent:
|
Name |
Securities Under Options Granted (#) |
Exercise Price ($/security) |
Market Value of Securities Underlying Options on the Date of Grant ($/security) |
Expiration Date D/M/Y |
|
G. Alan Hutton(2) |
6,820 |
$1.25 |
$1.25 |
27/5/2004 |
|
David H. James |
17,040 |
$1.25 |
$1.25 |
27/5/2004 |
|
David A. Rosenkrantz |
6,820 30,000 |
$1.25 $0.90 |
$1.25 $0.90 |
27/5/2004 30/6/2004 |
|
Roderick R. Senft(1) |
6,820 |
$1.25 |
$1.25 |
27/5/2004 |
|
David S. Willmot(2) |
34,060 |
$1.25 |
$1.25 |
27/5/2004 |
|
Michael L. Willmot(2) |
6,820 |
$1.25 |
$1.25 |
27/5/2004 |
(1) Resigned December 31, 1999.
On January 11, 1999 options which were about to expire were exercised using the Share Appreciation Rights feature of the employee stock option plan as approved by the Board. The following directors received the following net realized value: David S. Willmot $35,000; and Michael L. Willmot $35,000.
In connection with the February 15, 2000 acquisition of the majority of shares of Versent by Buckingham Technology Acquisition Group, Inc., options were tendered to the bid using the Share Appreciation Rights feature of the employee stock option plan. The following directors and former directors received the following net realized value: G. Alan Hutton $6,010; David H. James $8,520; David A. Rosenkrantz $28,910; Roderick R. Senft $3,410; David S. Willmot $17,030; and Michael L. Willmot $3,410. All options not in the money under the bid price were cancelled; there are now no share options outstanding.
Directors' and Officers' Liability Insurance
Versent maintains Directors' and Officers' liability insurance coverage. The annual premium for the policy is $27,000. The $3,000,000 policy has a $250,000 deductible.
Composition of the Audit and Compensation Committee
The members of the Audit and Compensation Committee of the Board (the "Committee") are Messrs. Robert B. Johnston (Chairman), David A. Rosenkrantz and Michael J. Buckstein. No member of the Committee was an officer or employee of Versent or any of its subsidiaries except Mr. Rosenkrantz who also serves as Versent's non-executive Chairman of the Board.
Report on Executive Compensation
Executive Compensation Program
The executive compensation program is designed to encourage, compensate and reward employees on the basis of individual and corporate performance, both in the short and long term. Base salaries are set at levels which are competitive with the base salaries paid by similar corporations within the similar industries at corporations of a comparable size, thereby enabling Versent to compete for and retain executives critical to Versent's long term success. Incentive compensation is directly tied to corporate and individual performance.
Compensation for the Named Executive Officers, as well as for other executive officers and key staff, consists of a base salary and profit sharing arrangements.
Base Salary
The level of base salary for each employee within a specified range is determined by the level of responsibility, the importance of the position to Versent and within competitive industry ranges.
The Board Versent determines the base salaries and bonuses of the executives officers of Versent who in turn determine the base salaries and profit sharing for all other employees of Versent.
Compensation of the President and Chief Executive Officer
The Chairman of the Committee presents recommendations to the Committee with respect to the compensation of the President and Chief Executive Officer. In setting the President and Chief Executive Officer's salary, the Committee reviews salaries paid to other executive officers in Versent, salaries paid to other chief executive officers in the industry and the President's and Chief Executive Officer's ability to impact on the achievement of Versent for the previous financial year.
Bonus
Versent has discontinued its profit sharing program and has replaced it with an interim bonus program for 17 key senior employees. The program is based upon targets related to budgeted cashflow and involves different payout percentages at different performance levels.
Stock Options
Versent has discontinued its stock option program and all stock options under the plan have been cancelled.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries Share Option Plan
In connection with the Buckingham acquisition, all options and warrants to purchase common shares were cancelled and the stock option plan was cancelled. There are no options or warrants to purchase common shares outstanding.
Item 13. Interest of Management In Certain Transactions
4. In June 1996, the Company acquired from Len Keywood, a current director of the Company and Majda Keywood, all of the outstanding common shares of Starburst in exchange for the payment of aggregate consideration of $2,401,565.
5. A company of which David Rosenkrantz, a director of the Company, is a director, officer and shareholder, received a $40,000 finder's fee in connection with the issuance of the Special Warrants.
Part II
Item 14. Description of Securities to be Registered
|
Authorized (class and number) |
Issued |
Authorized for issuance for a specific purpose (See Item 12) |
To be listed |
|
(A) |
(B) |
(C) |
(B + C) |
|
|
|
|
|
|
Unlimited number of Common Shares |
9,388,343 |
nil |
9,388,343 |
Common Shares
The holders of common shares are entitled to receive dividends, if, as and when declared by the Board of Directors of the Corporation and in the event of liquidation, dissolution or winding up or other distribution of assets of the Corporation, the remaining assets of the Corporation will be distributed in equal amounts per share on all the common shares at the time outstanding. The holders of the common shares are entitled to one vote per share at all meetings of shareholders of the Corporation.
The Corporation is restricted from repurchasing or redeeming the shares of the Corporation to prior approval from it's lender. Such approval shall be granted by the lender if it is reasonable to do so in the circumstances. The Corporation currently has no plans to repurchase any of its outstanding shares. The Corporation has not declared a dividend to date, nor is it obliged to provide for sinking fund installments on any of its existing or available credit facilities.
Part III
Item 15. Defaults Upon Senior Securities
None
Item 16. Changes in Securities and Changes in Security for Registered Securities
|
Date |
Number of Common Shares |
Brief description of the properties or other assets and the aggregate consideration thereof |
|
February 22, 1994 |
2,367,000 |
These shares were issued to the former shareholders of LQE pursuant to the reverse take-over transaction. |
|
February 22, 1994 |
837,500 |
These shares were issued by 1057251 Ontario Inc. through a private placement and were converted for shares of the Corporation on a 1:1 basis upon amalgamation. |
|
February 22, 1994 |
227,967 |
These shares were issued to the former Kingscross Resources Inc. shareholders after a 3.2:1 consolidation. |
|
June 30, 1994 |
1,983,750 |
These shares were issued in consideration of the purchase of 62.5% of the shares of Leisure Entertainment Corp. pursuant to a share purchase agreement dated as of June 30, 1994. |
|
July 28, 1995 |
1,230,000 |
These shares were issued upon the conversion of all 16 Special Shares. The Special Shares were sold on Feb. 22/94 for CDN$2 million in aggregate, the funds used to repay bank indebtedness. |
|
June 14, 1996 |
254,545 |
These shares were issued as partial consideration for the acquisition of Starburst Coin Machines Inc. |
|
December 19, 1996 |
55,556 |
These shares were issued as partial consideration for the acquisition of Game Time Amusements Ltd. |
|
January 10, 1997 |
34,722 |
These shares were issued as partial consideration for the acquisition of Threshold Electronics Limited. |
|
April 23, 1997 |
2,143,000 |
The Company issued by way of private placement 10,715,000 Special Warrants at a price of $1.40 per Special Warrant for gross proceeds of $15,001,000. Each Special Warrant was converted for no additional consideration into one Common Share of the Corporation. |
|
1997 |
215,750 |
Exercise of share options. |
|
December 1997 |
(14,300) |
Shares purchased for cancellation pursuant to approval received to conduct a normal course issuer bid. |
|
February 19, 1998 |
(104) |
These shares were cancelled due to rounding when the shares of the Corporation were consolidated on a 1 for 5 basis. |
|
March 31, 1998 |
299,417 |
These shares were issued as partial consideration for the acquisition of Chromacolour Holdings Limited. |
|
1998 |
3,500 |
Exercise of share options. |
|
1998 |
(369,960) |
Shares purchased for cancellation pursuant to approval received to conduct a normal course issuer bid. |
|
February 14, 2000 |
120,000 |
Exercise of share options. |
|
|
9,388,343 |
|
Note: This information has been restated to reflect the February 1998 1:5 share consolidation on a post-consolidation basis.
Part IV
Item 17. Financial Statements
See Item 18.
Item 18. Financial Statements
The financial statements are prepared in accordance with generally accepted accounting principals in Canada. These principals do not materially differ from generally accepted accounting principals in the United States.
All amounts presented in the financial statements are expressed in Canadian dollars.
Versent Corporation
Consolidated Balance Sheets
As at December 31st
|
|
|
1999 |
|
1998 |
|
Assets |
|
|
|
|
|
Current |
|
|
|
|
|
Cash |
$ |
1,308,904 |
$ |
555,251 |
|
ABM cash float |
|
-- |
|
6,186,336 |
|
Accounts and other receivables |
|
1,071,364 |
|
712,482 |
|
Inventories Inventories |
|
1,585,134 |
|
1,813,803 |
|
Income taxes recoverable |
|
56,526 |
|
1,693,976 |
|
Prepaids and deposits |
|
970,893 |
|
971,051 |
|
Current portion of note receivable (note 7) |
|
580,000 |
|
-- |
|
Current assets of discontinued operations (note 2) |
|
1,343,367 |
|
8,503,454 |
|
Total current assets |
|
6,916,188 |
|
20,436,353 |
|
Other |
|
|
|
|
|
Capital assets (note 3) |
|
26,296,460 |
|
33,431,279 |
|
Deferred costs (note 4) |
|
2,690,494 |
|
4,940,727 |
|
Laser Quest rights (note 5) |
|
4,757,268 |
|
5,280,458 |
|
Goodwill (note 6) |
|
859,165 |
|
933,519 |
|
Note receivable (note 7) |
|
870,000 |
|
-- |
|
Other assets of discontinued operations (note 2) |
|
-- |
|
13,227,055 |
|
|
|
35,473,387 |
|
57,813,038 |
|
Total Assets |
$ |
42,389,575 |
$ |
78,249,391 |
|
Liabilities & Shareholders' Equity |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Bank indebtedness (note 8) |
$ |
-- |
$ |
2,837,289 |
|
Accounts payable and accrued liabilities |
|
5,006,249 |
|
3,700,664 |
|
Current portion of term debt (note 8) |
|
23,055,678 |
|
9,350,000 |
|
Current liabilities of discontinued operations (note 2) |
|
645,101 |
|
2,029,719 |
|
Total current liabilities |
|
28,707,028 |
|
17,917,672 |
|
Non-current Liabilities |
|
|
|
|
|
Term debt (note 8) |
|
-- |
|
25,650,000 |
|
Commitments (note 11) |
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
Capital stock (note 10) |
|
30,567,709 |
|
30,936,683 |
|
Retained earnings (deficit) |
|
(17,766,777) |
|
527,468 |
|
Deferred foreign currency exchange adjustment |
|
881,615 |
|
3,217,568 |
|
Total Shareholders' Equity |
|
13,682,547 |
|
34,681,719 |
|
Total Liabilities and Shareholders' Equity |
$ |
42,389,575 |
$ |
78,249,391 |
|
On behalf of the Board:
F. Gregory Thompson David A. Rosenkrantz
President and Chief Executive Officer Chairman of the Board of Directors
Versent Corporation
Consolidated Statements of Income (Loss)
For the year ended December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Revenues |
$ |
46,678,805 |
$ |
44,027,918 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Cost of sales |
|
898,483 |
|
832,166 |
Operating |
|
33,183,387 |
|
27,696,666 |
Administrative |
|
4,458,020 |
|
5,662,517 |
Income before interest and amortization |
|
8,138,915 |
|
9,836,569 |
|
|
|
|
|
|
Interest (note 13a) |
|
3,079,342 |
|
1,692,754 |
Amortization (note 13b) |
|
9,657,215 |
|
7,277,210 |
Operating income (loss) from continuing operations before income taxes |
|
(4,597,642) |
|
866,605 |
Income taxes (note 9) |
|
802,755 |
|
464,900 |
Net income (loss) from continuing operations |
|
(5,400,397) |
|
401,705 |
Net loss from discontinued operations (note 2) |
|
(13,063,849) |
|
(2,282,465) |
Net loss |
$ |
(18,464,246) |
$ |
(1,880,760) |
|
|
|
|
|
|
Net earnings (loss) from continuing operations per share - basic |
|
($0.58) |
|
$0.04 |
Net loss per share - basic |
|
($1.99) |
|
($0.20) |
Versent Corporation
Consolidated Statements of Retained Earnings (Deficit)
For the years ended December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Retained earnings, beginning of year Gain (Loss) on purchase and cancellation of Common Shares (note 10f and 10g) |
$ |
527,468 170,001 |
$ |
2,973,951 (565,723) |
Net loss |
|
(18,464,246) |
|
(1,880,760) |
Retained earnings (Deficit), end of year |
$ |
(17,766,777) |
$ |
527,468 |
Versent Corporation
Consolidated Statements of Changes in Financial Position
For the year ended December 31st
|
|
|
1999 |
|
1998 |
Cash provided by (used in): |
|
|
|
|
Operating activities: |
|
|
|
|
Net income (loss) from continuing operations |
$ |
(5,400,397) |
$ |
401,705 |
Items not requiring cash: |
|
|
|
|
Amortization (note 13b) |
|
9,657,215 |
|
7,277,210 |
Decrease in deferred income taxes |
|
-- |
|
(591,033) |
Cash flow from continuing operations |
|
4,256,818 |
|
7,087,882 |
Decrease (Increase) in non-cash working capital |
|
2,421,717 |
|
(1,392,269) |
Net operating cash flow from continuing operations |
|
6,678,535 |
|
5,695,613 |
Investing activities: |
|
|
|
|
Purchase of capital assets |
|
(1,029,624) |
|
(4,200,416) |
Deferred start-up costs |
|
(589,685) |
|
(1,264,970) |
Acquisitions and divestitures (note 12) |
|
5,976,737 |
|
(3,219,706) |
Decrease (Increase) in ABM cash float |
|
6,186,336 |
|
(6,186,336) |
|
|
|
10,543,764 |
|
(14,871,428) |
Financing activities: |
|
|
|
|
Increase (Decrease) in bank indebtedness |
|
(2,837,289) |
|
2,802,686 |
Issuance of term debt |
|
-- |
|
38,000,000 |
Repayment of term debt |
|
(11,944,322) |
|
(16,781,694) |
Issuance of Common Shares (note 10b) |
|
-- |
|
7,000 |
Cancellation of Capital Stock (note 10f) |
|
(198,973) |
|
(1,770,422) |
|
|
|
(14,980,584) |
|
22,257,570 |
|
|
|
|
|
|
Increase (Decrease) in cash from continuing operations |
|
2,241,715 |
|
13,081,755 |
Increase (Decrease) in cash from discontinued operations |
|
(1,488,062) |
|
(13,240,639) |
Increase (Decrease) in cash |
|
753,653 |
|
(158,884) |
Cash, beginning of year |
|
555,251 |
|
714,135 |
Cash, end of year |
$ |
1,308,904 |
$ |
555,251 |
|
|
|
|
|
|
Cash flow from continuing operations per share - basic |
|
$0.46 |
|
$0.75 |
Supplementary information: |
|
|
|
|
Income taxes paid (recovered) during the year |
$ |
(1,008,085) |
$ |
2,026,771 |
Interest paid during the year |
$ |
3,558,907 |
$ |
2,344,010 |
Versent Corporation
Notes to the Consolidated Financial Statements
. December 31, 1999 and December 31, 1998
These consolidated financial statements include the accounts of Versent Corporation ("Versent") and its subsidiary companies. Intercompany accounts and transactions have been eliminated on consolidation.
Significant accounting policies
Revenue is recognized when services are performed or goods have been delivered.
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value.
Capital assets are recorded at cost. Amortization commences in the first full calendar month of operation of a Laser Quest Centre ("LQ Centre") or when the asset is first put into use and is provided on a straight-line basis over the estimated useful lives of the assets at the following annual rates:
Building |
|
Leasehold improvements |
|
LQ game equipment |
|
Automated banking machines |
|
Furniture, fixtures and equipment |
|
Start-up costs directly relating to the opening of a particular LQ Centre are capitalized and amortized on a straight-line basis over a five year period from the commencement of the first full month of operations at that particular centre. Start-up costs directly relating to the establishment of the Threshold Electronics Limited ("Threshold") manufacturing facility were capitalized and are being amortized on a straight-line basis over a five-year period from the commencement of production.
Intangibles are recorded at cost and are amortized over a period of fifteen years. Management's policy is to continually review whether the profitability of the business, the potential for growth, and the competitive position of the business in the marketplace remain favourable to Versent. So long as this is the case, Versent will continue to amortize its intangible assets on the foregoing schedule. If the forecasted undiscounted operating earnings of the underlying business units do not appear sufficient to recover the net book value of the intangible assets, then Versent will write them down to the level at which forecasted operating earnings appear sufficient to recover the net book value of the intangible assets.
The accounts of self-sustaining subsidiaries in countries other than Canada have been translated into Canadian dollars as follows: assets and liabilities at the year end exchange rates and revenue and expenses at the average exchange rate for each month. Foreign exchange gains or losses arising from translation of assets and liabilities are deferred and included in a separate component of shareholders' equity as "Deferred foreign currency exchange adjustment".
The carrying values of Versent's financial assets and liabilities do not differ materially from their fair values at either December 31, 1999 or December 31, 1998. The fair value of Versent's note receivable and term debt is determined by discounting expected future cash flows at current market rates of interest.
The ABM cash float represented cash held in, or committed to, Versent's automated banking machines operations and not otherwise available for general corporate purposes.
Versent follows the deferral method of income tax allocation in accounting for income taxes. Under this method, certain differences between income for accounting and income for tax purposes give rise to deferred income taxes.
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in Canada requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from these estimates.
Versent adopted new disclosure standards for the Statement of Cash Flows and restated the prior year's Statement of Changes in Financial Position to conform to the revised standard.
1. Basis of presentation
These consolidated financial statements have been prepared on the basis that Versent will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
In connection with the Buckingham bid (note 16a), Management sought and obtained an interim extension of the existing financing arrangement to September 5, 2000. Although Versent has positive cashflows from continuing operations, current financial projections indicate that existing cash resources together with cash flows from operations will not be sufficient to fully discharge the obligation by that date. Management is currently in discussion with Versent's principal lender to renegotiate the existing financial arrangement and at the same time is actively pursuing alternate financing from other potential lenders. While it cannot be assured, Management believes they will be successful in obtaining replacement financing.
Accordingly, Versent's continuation in the normal course could depend on whether it succeeds in renegotiating its financing with its existing lender, raising alternative financing from third parties, or receiving additional financial support from its shareholders, none of which can be predicted with certainty at this time. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should Versent be unable to achieve these objectives.
2. Discontinued operations
In 1999 Versent decided to focus exclusively on the Laser Quest and Laser Cash businesses and took steps to divest of all other businesses, Coin-operated amusements (Starburst and other) and Crafts (Chromacolour and Color Me Mine). Comparative figures related to discontinued operations have been reclassified to conform with current year's presentation. The following represents the financial statements of the discontinued operations:
Investment in discontinued operations |
As at December 31st |
|
|
|
1999 |
1998 |
Current Assets |
|
|
Cash |
$ 198,263 |
$ 612,775 |
Accounts receivable |
698,810 |
4,537,187 |
Inventories |
435,933 |
3,797,945 |
Income taxes recoverable |
10,361 |
(619,004) |
Prepaids and deposits |
-- |
174,551 |
Total Current Assets |
1,343,367 |
8,503,454 |
Other Assets |
|
|
Capital assets |
-- |
9,231,141 |
Goodwill |
-- |
3,995,914 |
Total Other Assets |
-- |
13,227,055 |
Current Liabilities |
645,101 |
2,029,719 |
Net investment in discontinued operations |
$ 698,266 |
$ 19,700,790 |
For the Coin-operated amusements segment, Versent adopted a formal plan to dispose on March 31, 1999 and for the Craft segment it was on June 30, 1999 with respect to the Color Me Mine business and on September 30, 1999 with respect to the Chromacolour business.
|
Loss from discontinued operations |
For the year ended December 31, 1999 |
||
|
|
Coin-operated Amusements |
Crafts |
Total |
|
Revenues |
$ 6,770,581 |
$ 7,022,430 |
$ 13,793,011 |
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
$ (255,537) |
$ (1,558,241) |
$ (1,813,778) |
|
Income taxes |
4,639 |
6,308 |
10,947 |
|
Operating loss from discontinued operations |
(260,176) |
(1,564,549) |
(1,824,725) |
|
Loss on disposal, net of income tax recovery of $184,898 |
(5,181,957) |
(6,057,167) |
(11,239,124) |
|
Net loss from discontinued operations |
$ (5,442,133) |
$ (7,621,716) |
$(13,063,849) |
Included in the loss on disposal is a write-down of goodwill in the amount of $2,543,082.
|
Loss from discontinued operations |
For the year ended December 31, 1998 |
||
|
|
Coin-operated Amusements |
Crafts |
Total |
|
Revenues |
$ 18,937,694 |
$ 4,626,654 |
$ 23,564,348 |
|
|
|
|
|
|
Income (Loss) from discontinued operations before income taxes |
$ 343,393 |
$ (2,405,143) |
$ (2,061,750) |
|
Income taxes |
148,815 |
71,900 |
220,715 |
|
Net income (loss) from discontinued operations |
$ 194,578 |
$ (2,477,043) |
$ (2,282,465) |
3. Capital assets
Capital assets from continuing operations consist of the following:
|
|
As at December 31, 1999 |
||
|
|
Cost |
Accumulated Amortization |
Net Book Value |
|
Land |
$ 101,218 |
$ -- |
$ 101,218 |
|
Building |
498,062 |
127,006 |
371,056 |
|
Leasehold improvements |
28,123,330 |
9,508,922 |
18,614,408 |
|
LQ game equipment |
6,420,503 |
4,469,558 |
1,950,945 |
|
Automated banking machines |
4,469,759 |
1,021,977 |
3,447,782 |
|
Furniture, fixtures and equipment |
5,546,761 |
3,735,710 |
1,811,051 |
|
|
$ 45,159,633 |
$ 18,863,173 |
$ 6,296,460 |
|
|
|
||
|
|
As at December 31, 1998 |
||
|
|
Cost |
Accumulated Amortization |
Net Book Value |
|
Land |
$ 101,218 |
$ -- |
$ 101,218 |
|
Building |
498,062 |
107,308 |
390,754 |
|
Leasehold improvements |
31,451,664 |
7,516,656 |
23,935,008 |
|
LQ game equipment |
8,072,385 |
4,210,144 |
3,862,241 |
|
Automated banking machines |
3,952,224 |
361,556 |
3,590,668 |
|
Furniture, fixtures and equipment |
2,965,220 |
1,413,830 |
1,551,390 |
|
|
$ 47,040,773 |
$ 13,609,494 |
$ 33,431,279 |
4. Deferred costs
Deferred start-up costs related to opening LQ Centres and the establishment of the Threshold manufacturing facility consist of the following:
As at December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
Deferred costs |
$ |
8,585,404 |
$ |
8,736,178 |
|
Accumulated amortization |
|
5,894,910 |
|
3,795,451 |
|
Net book value |
$ |
2,690,494 |
$ |
4,940,727 |
5. Laser Quest rights
Versent owns the worldwide rights to the Laser Quest concept. In North America Versent is developing the concept primarily through corporately owned LQ Centres. In the rest of the world, excluding Europe, the concept is developed under Master License arrangements which provide Versent with license fees, royalties and equipment mark-ups under varying terms in each territory.
As at December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
Laser Quest rights |
$ |
7,229,716 |
$ |
7,291,727 |
|
Accumulated amortization |
|
2,472,448 |
|
2,011,269 |
|
Net book value |
$ |
4,757,268 |
$ |
5,280,458 |
6. Goodwill
Goodwill from continuing operations consists of the following:
As at December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
Goodwill |
$ |
1,115,303 |
$ |
1,115,303 |
|
Accumulated amortization |
|
256,138 |
|
181,784 |
|
Net book value |
$ |
859,165 |
$ |
933,519 |
7. Note receivable
The $1,450,000 note receivable relates to the sale of Starburst Coin Machines. The note bears interest at 6% per annum and is to be repaid in three installments: $580,000 on May 1, 2000, $435,000 on May 1, 2001 and $435,000 on May 1, 2002 (note 12a).
8. Bank indebtedness and term debt
Bank indebtedness and term debt consist of the following:
As at December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
Bank indebtedness (note 8a) |
$ |
-- |
$ |
2,837,289 |
|
|
|
|
|
|
|
Term loan (note 8b) |
$ |
23,055,678 |
$ |
35,000,000 |
|
|
|
|
||
|
Less: current portion |
|
23,055,678 |
|
9,350,000 |
|
|
|
|
|
|
|
Long-term portion of term debt |
$ |
-- |
$ |
25,650,000 |
Versent's financing arrangements with a Canadian chartered bank (the "Bank") provided for credit facilities totaling $26,055,678 at December 31, 1999 structured as follows:
Amounts drawn under these facilities are collateralized by a general assignment of book debts and a general security agreement on the assets of Versent and its subsidiaries.
At December 31, 1999 the Canadian prime rate was 6.50% (1998 - 6.75%). The balance of the facilities are due on September 5, 2000.
9. Income taxes
a) A reconciliation of the basic income tax rate in Canada to the effective tax rate for Versent is as follows:
For the years ended December 31st
|
|
1999 |
1998 |
|
Expected income tax rate |
(45.0%) |
45.0% |
|
Losses not tax-benefited |
60.9% |
11.0% |
|
Non-deductible amortization of goodwill and Laser Quest rights |
5.4% |
27.7% |
|
Share issue costs |
(2.5%) |
(13.0%) |
|
Foreign income taxed at lower rates |
(2.0%) |
(16.3%) |
|
Other |
0.7% |
(0.7%) |
|
|
17.5% |
53.7% |
b) Versent has Canadian non-capital losses of approximately $6,000,000 and capital losses of approximately $2,450,000, the tax benefit of which have not been recognized in these consolidated financial statements. These losses are available to offset future taxable income and expire in the years 2004 to 2006.
10. Capital stock
On February 19, 1998, the Shareholders of Versent approved a 1:5 Common Share consolidation and changed the name of Versent from Laser Quest Corporation to Versent Corporation. These consolidated financial statements reflect the consolidation on a retroactive basis.
|
|
Common Shares |
|
|
|
# |
$ |
|
Balance, December 31, 1997 |
9,335,386 |
30,337,881 |
|
Common Shares Issued, March 31, 1998 (note 12c) |
299,417 |
1,796,500 |
|
Share options exercised (note 10c) |
3,500 |
7,000 |
|
Shares cancelled through normal course issuer bid (note 10g) |
(369,960) |
(1,204,698) |
|
Balance, December 31, 1998 |
9,268,343 |
30,936,683 |
|
Share options cancelled through Share Appreciation Rights (note 10f) |
-- |
(368,974) |
|
Balance, December 31, 1999 |
9,268,343 |
30,567,709 |
11. Lease commitments
Versent and its subsidiaries have entered into agreements to lease properties for various periods up to 2007. Certain of the leases provide for additional rent based on sales. Future minimum annual rental payments for the non-cancellable term of the leases in effect at December 31, 1999 are as follows for the years ending December 31st:
|
2000 |
$5,741,000 |
|
2001 |
5,021,000 |
|
2002 |
3,990,000 |
|
2003 |
2,349,000 |
|
2004 |
1,732,000 |
|
|
18,833,000 |
|
Thereafter |
1,655,000 |
|
Total |
$20,488,000 |
12. Acquisitions and divestitures
Consideration
Cash $ 5,357,993
Note receivable (note 7) 1,450,000
6,807,993
Net investment 11,700,774
Net loss on disposal $ (4,892,781)
Cash consideration $ 618,744
Net investment 1,618,577
Net loss on disposal $ (999,833)
The acquisition was accounted for using the purchase method and the results of operations are included in Versent's results from discontinued operations from the date of acquisition. This transaction involved the issue of 299,417 Common Shares of Versent. The details of the consideration paid and its allocation to the assets acquired are as follows:
Net assets acquired at assigned value
Working capital $ 658,180
Capital assets 388,444
Goodwill 2,822,082
$ 3,868,706
Consideration
Cash $ 2,072,206
Common Shares issued 1,796,500
$ 3,868,706
Net assets acquired at assigned value
Working capital $ 941,905
Capital assets 205,595
Cash consideration $ 1,147,500
13. Other information
For the years ended December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
Current debt and bank charges |
$ |
1,454,512 |
$ |
166,894 |
|
Term debt |
|
1,624,830 |
|
1,525,860 |
|
$ |
3,079,342 |
$ |
1,692,754 |
For the years ended December 31st
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
Capital assets |
$ |
5,724,218 |
$ |
5,290,304 |
|
|
Deferred costs |
|
2,407,786 |
|
1,428,626 |
|
|
Laser Quest rights |
|
479,609 |
|
483,927 |
|
|
Goodwill |
|
74,354 |
|
74,353 |
|
|
Write-down on closure of LQ Centres |
|
971,248 |
|
-- |
|
|
|
$ |
9,657,215 |
$ |
7,277,210 |
|
14. Consolidated Statements of Cash Flows
The following investing and financing transactions have not been included in the consolidated statements of cash flows because they did not involve the use of cash:
15. Segmented information
Versent operates in two continuing industry segments. The Laser Quest laser tag segment derives revenue from LQ Centre operations in North America and the licensing of the concept internationally. The Laser Cash private label ABM segment derives revenue from the operation and sale of automated banking machines.
|
Segment information: |
December 31, 1999 |
||
|
|
Laser Quest |
Laser Cash |
Total |
|
Revenues |
$ 40,682,519 |
$ 5,996,286 |
$ 46,678,805 |
|
Interest expense |
2,661,901 |
417,441 |
3,079,342 |
|
Amortization |
9,002,144 |
655,071 |
9,657,215 |
|
Segment loss |
(4,809,115) |
(591,282) |
(5,400,397) |
|
Segment assets |
37,252,938 |
3,793,270 |
41,046,208 |
|
Segment capital asset expenditures and deferred costs |
833,252 |
786,057 |
1,619,309 |
|
Geographic information: |
December 31, 1999 |
|
|
|
Revenues |
Other assets |
|
Canada |
$ 11,516,235 |
$ 13,244,882 |
|
United States |
34,802,061 |
22,017,272 |
|
Other foreign countries |
360,509 |
211,233 |
|
Total |
$ 46,678,805 |
$ 35,473,387 |
|
Segment information: |
December 31, 1998 |
||
|
|
Laser Quest |
Laser Cash |
Total |
|
Revenues |
$ 42,826,716 |
$ 1,201,202 |
$ 44,027,918 |
|
Interest expense |
1,582,878 |
109,876 |
1,692,754 |
|
Amortization |
6,915,654 |
361,556 |
7,277,210 |
|
Segment profit (loss) |
973,045 |
(571,340) |
401,705 |
|
Segment assets |
46,369,130 |
10,149,752 |
56,518,882 |
|
Segment capital asset expenditures and deferred costs |
1,513,162 |
3,952,224 |
5,465,386 |
|
Geographic information: |
December 31, 1998 |
|
|
|
Revenues |
Other assets |
|
Canada |
$ 6,880,391 |
$ 14,441,132 |
|
United States |
35,816,101 |
29,893,541 |
|
Other foreign countries |
1,331,426 |
251,310 |
|
Total |
$ 44,027,918 |
$ 44,585,983 |
Revenues and other assets are attributed to countries based on location of Versent's operations.
16. Subsequent events
Management's Responsibility for Consolidated Financial Statements
The preparation of the consolidated financial statements of Versent Corporation is the responsibility of management. This responsibility includes the selection of appropriate accounting policies and the exercise of careful judgment in establishing reasonable and accurate estimates in accordance with accounting principles generally accepted in Canada applied on a consistent basis and as appropriate in the circumstances. Financial information shown elsewhere in this Annual Report is consistent with that contained in the consolidated financial statements.
Management of Versent Corporation and its operating divisions has developed and maintains accounting systems and internal controls designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and that the financial records are reliable.
The Board of Directors approves these consolidated financial statements and carries out its responsibility in this regard principally through the Audit Committee of the Board, all members of which are outside directors. The Audit Committee reviews the results of audit examinations performed by the independent external auditors with respect to Versent's accounting principles, practices and systems of internal control.
The consolidated financial statements have been audited by Ernst & Young LLP, Chartered Accountants. Their report stating the scope of their audit and their opinion on the consolidated financial statements is presented below.
F. Gregory Thompson Clinton L. Wolff
President and Vice President, Finance
Chief Executive Officer Secretary-Treasurer
Auditors' Report
To the Shareholders of Versent Corporation
We have audited the consolidated balance sheets of Versent Corporation as at December 31, 1999 and 1998 and the consolidated statements of loss, retained earnings (deficit) and cash flows for the years then ended. These financial statements are the responsibility of Versent's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Versent Corporation as at December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in Canada.
March 10, 2000 Chartered Accountants
[Except for note 16b which is at April 18, 2000]
Versent Corporation
Corporate Information
Directors
Michael J. Buckstein C
David H. James (President, Laser Quest International Corporation)
Robert B. Johnston C
Deborah Morrison
Jeffrey Rosen
David A. Rosenkrantz C (Chairman of the Board of Directors)
F. Gregory Thompson (President and Chief Executive Officer)
C
- member of the Audit and Compensation CommitteeOther Senior Personnel
Versent Corporate: Clinton L. Wolff (Vice President, Finance and Secretary/Treasurer)
Tracy Boyd (Vice President, Marketing)
Laser Quest: Sue Millar (Vice President, LQ Operations)
Threshold Electronics: Matthew McIver (President, Threshold Electronics Limited)
Versent Corporate Office (Laser Quest and Threshold)
3269 American Drive, Mississauga, Ontario, Canada, L4V 1V4
Telephone: (905) 678-7272 Fax: (905) 678-9898
Transfer Agent CIBC Mellon Trust Company, Toronto, Ontario
Listing of Capital Stock Toronto Stock Exchange, Trading symbol "VTC"
Annual Meeting Versent Corporation's Annual Meeting of Shareholders will be held on Wednesday, June 21, 2000 at 10:00 a.m. at 3269 American Drive, Mississauga, Ontario.
Item 19. Financial Statements and Exhibits
Exhibits and Exhibit Index
Note:
As of December 31, 1999, the prime rate in Canada was 6.5%.
Earnings per share calculation:
|
(CDN$) Earnings Per Share |
December 31, 1999 |
December 31, 1998 |
December 31, 1997(a) |
December 31, 1996 |
January 31, 1996 |
|
Number of Shares outstanding: |
9,268,343 |
9,268,343 |
8,649,882 |
34,781,588 |
33,231,083 |
|
Net income (loss) |
($18,464,000) |
($1,880,760) |
$2,844,912 |
$1,403,910 |
$223,733 |
|
|
|
|
|
|
|
|
Earnings per share |
($1.99) |
($0.20) |
$.33 |
$0.04 |
$0.01 |
Signature
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Versent Corporation
CLINTON L. WOLFF
CLINTON L. WOLFF, CA
Vice President, Finance
Secretary-Treasurer
Date: June 20, 2000
|
|