F. Gregory Thompson David A. Rosenkrantz

President and Chief Executive Officer Chairman of the Board of Directors

(Separate analyses of financial condition, results of operations and cash flows appear on pages 5, 7, and 9 respectively)

Versent Corporation ("Versent") operated in two continuing segments in 1999:

• Laser Quest^® which included LQ Centre operations in North America, Versent corporate overheads, international licensing of the Laser Quest concept through Laser Quest International, and the Laser Quest support functions provided by Threshold Electronics; and
• Laser Cash^® private label (i.e. - non-financial institution) automated banking machine ("ABM") network developed by Threshold Electronics.

Versent discontinued operations in two other segments during the year:

• Coin-operated amusements which included Starburst Coin Machines route and distribution operations, games rooms at Waterloo and York universities, and satellite arcade operations; and
• Crafts which included Chromacolour paint and animation supplies and Color Me Mine ceramic studios.

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.

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 .

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.

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.

On behalf of the Board:

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.

1. Revenue recognition

Revenue is recognized when services are performed or goods have been delivered.

2. Inventories

Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value.

3. Capital assets

Building	4%
Leasehold improvements	over term of lease
LQ game equipment	20%
Automated banking machines	20% - 33%
Furniture, fixtures and equipment	20%

1. Deferred costs

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.

2. Laser Quest rights and goodwill

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.

3. Translation of foreign currency

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".

4. Fair value of financial instruments

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.

5. ABM cash float

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.

6. Income taxes

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.

7. Use of estimates

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.

8. Cash

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

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)

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)

		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

		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

Goodwill from continuing operations consists of the following:

		1999		1998
Goodwill	$	1,115,303	$	1,115,303
Accumulated amortization		256,138		181,784
Net book value	$	859,165	$	933,519

		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

	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%

	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

1. During the year ended December 31, 1999, 663,500 (1998 - 330,060) share options were granted to employees and key consultants. Also during 1999, 227,590 (1998 - 41,400) share options previously granted were cancelled and no share options (1998 - 3,500) were exercised (1998 - $7,000 in proceeds). See subsequent events note (note 16a).
2. At December 31, 1999, 904,970 share options were outstanding of which 564,110 were fully vested and the remainder were subject to vesting periods of up to four years. The options were at prices ranging between $0.90 and $7.75 and had expiry dates ranging from March 6, 2000 to November 1, 2004. See subsequent events note (note 16a).
3. As at December 31, 1999, 65,000 warrants with exercise prices ranging between $3.85 and $7.75 expiring between December 20, 2000 and February 21, 2002 were outstanding. During 1998, 214,300 warrants with an exercise price of $7.30 expired without being exercised. See subsequent events note (note 16a).
4. On January 11, 1999, Versent cancelled 284,247 share options which were to expire on February 22, 1999 utilizing Share Appreciation Rights whereby the option holders received $198,973, the net value of the share options, directly from Versent. The price of the repurchased shares was less than the weighted average book value resulting in a gain of $170,001 being credited to retained earnings.
5. On December 8, 1997, Versent received approval to conduct a normal course issuer bid under which up to 467,489 Common Shares could be purchased for cancellation. During the period from December 8, 1997 to December 31, 1997, 14,300 Common Shares were purchased for cancellation. During the period from January 1, 1998 to December 7, 1998 369,960 shares were repurchased for cancellation. The aggregate consideration paid for the shares was $1,770,422 (1997 - $76,402). This normal course issuer bid expired on December 7, 1998. The weighted average price of the repurchased shares exceeded their book value resulting in a loss of $565,723 being charged to retained earnings.
7. Earnings and cash flow from operations per share are based on the weighted average number of Common Shares outstanding. Fully diluted earnings per share is not presented as the effect of the calculation is anti-dilutive.
8. Under the terms of the banking arrangement, as long as amounts are owing to the Bank, Versent is restricted in declaring dividends and, at the Bank's option, any proceeds from share issues will first be used to retire indebtedness to the Bank.

1. Interest expense related to continuing operations consists of the following:

For the years ended December 31^st

		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

1. Amortization related to continuing operations consists of the following:

		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

3075:

Segment loss

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
(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