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WASHINGTON, D.C. 20549
FORM 20-F
(Mark one)
-[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
or
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended ____________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission File Number: _________________________
ISEE3D INC.
(Exact Name of Registrant as Specified in its Charter)
Canada
(Jurisdiction of Incorporation or Organization)
4, Westmount Square, Suite 100, Westmount, Quebec, H3Z 2S6
(Address of Principal Executive Offices)
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, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
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None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the date of this registration
64,700,100 Shares, without par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) for the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
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Indicate by check mark which financial statement item the registrant has elected
to follow.
ITEM 17 X ITEM 18
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(Applicable only to issuers involved in bankruptcy proceedings during the past
five years)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) for the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
Except as otherwise noted, all dollar amounts are presented in Canadian dollars.
Exchange Rate: At June 26, 2000, the exchange rate of Canadian dollars into
United States dollars was 1.4834 Canadian to $1.00 United States.
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TABLE OF CONTENTS
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Item 1. Description of Business................................................................1
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Item 2. Description of Property................................................................8
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Item 3. Legal Proceedings......................................................................8
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Item 4. Control of Registrant..................................................................8
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Item 5. Nature of Trading Market...............................................................9
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Item 6. Exchange Controls and Other Limitations Affecting Security Holders....................10
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Item 7. Taxation..............................................................................12
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Item 8. Selected Financial Data...............................................................13
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Item 9. Management's Discussion and Analysis of Financial Condition and Results of
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Operations............................................................................15
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Results of Operations............................................................................................15
Period Ended March 31, 2000 Compared to the Period Ended March 31, 1999..........................................15
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.....................................18
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Item 10. Directors and Officers.........................................................................18
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Item 11. Compensation of Directors and Officers.........................................................21
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Item 12. Options to Purchase Securities from Registrant.................................................22
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Item 13. Interest of Management in Certain Transactions.................................................24
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Item 14. Description of Securities to be Registered.....................................................24
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Item 15. Defaults Upon Senior Securities................................................................25
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Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of
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Proceeds.......................................................................................25
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Item 17. Financial Statements...........................................................................25
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Item 18. Financial Statements...........................................................................25
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Item 19. Financial Statements...........................................................................25
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ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
ISee3D Inc. ("ISee3D" or the "Company" which includes previously
consolidated companies except where the context dictates otherwise) has been a
developer of software and hardware technology which enables the creation,
transmission and display of three-dimensional media over the Internet. After 14
years as an innovator of three-dimensional ("3D") solutions in the medical
industry, ISee3D has now radically redirected its efforts to the Internet where
it plans to use its patent pending technology to allow developers of content to
deliver a 3D (stereoscopic) viewing experience to Internet consumers worldwide.
The core of ISee3D's technology is its proprietary system for encoding
and decoding 3D video images in a manner which will allow them to be streamed on
the Internet while preserving the three dimensional effect. ISee3D's technology
allows for effective streaming at transmission speeds as low as 56.6 Kbps, the
speed at which a standard modem can receive data. ISee3D plans to license this
technology to a wide variety of businesses which may want to disseminate 3D
video to other businesses and consumers over the Internet.
COMPANY HISTORY
Corporate History
ISee3D is the successor to several companies which have been merged and
consolidated. ISee3D was incorporated under the laws of Canada by articles of
incorporation dated February 9, 1981 as Shadowfax Resources Ltd. By articles of
amendment dated April 6, 1990, Shadowfax changed its name to Docu-Fax
International Inc. Between 1990 and 1992, the Docu-Fax was involved in the
business of electronics transfer and receipt of information and voice recordings
through certain subsidiaries which have now been divested.
On September 14, 1994, Docu-Fax became International Telepresence
(Canada) Inc. This name change was made in connection with the acquisition of
all of the outstanding shares of International Telepresence Corporation pursuant
to a share exchange takeover bid. The acquired company, subsequently
consolidated into ISee3D, was created in November, 1990 upon the merger of two
predecessor companies, International Telepresence Corp. and TRI Telepresence
Research Inc., which were incorporated in 1988 and 1986, respectively. Since
1986, the acquired company (or its predecessor companies) had been involved in
the development and implementation of 3D imaging systems, and 3D telepresence
systems, for use in various enterprises, including medicine, the nuclear
industry, the subsea and space exploration and hazardous material handling. It
offered these industries technologies for the three dimensional film making, at
first using two synchronized camera, but later using a patented single camera
technique.
With the growth of the Internet, and most significantly, streaming
video, over the last several years, the Company has decided to change its
business and focus on the transmission of video data over the Internet. In March
1999 the Company established an Internet Advisory Board to guide the
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Company in developing 3D streaming video technology for the Internet. Since then
the Company has developed what it believes to be the first practical system for
transmitting 3D video over the Internet in a commercially feasible manner.
In connection with the acquisition of International Telepresence in
September 1994, the Company went public on the Canadian Dealing Network (CDN).
On April 30, 1999 it changed its name to ISee3D Inc. to better reflect its
current business. Its common shares trade under the symbol EYEC. The Company's
shares are also traded on the National Quotation Bureau pink sheets under the
symbol ISEDF. The Corporation's principal office is located at 4, Westmount
Square, Suite 100, Westmount, Quebec, H3Z 2S6.
ISEE3D'S TECHNOLOGY
Unique Aspects
ISee3D's technology differs from others in the field in several crucial
ways:
o ISee3D has created what it believes to be the first
pre-encoding format to be compatible with all third party
compression, transmission, decompression and display
technologies to enable the distribution of 3D content. This
standard, called DVU for dimensional viewing, is designed to
work within the protocols of the Internet and the World Wide
Web. The data standard was designed for Internet transmission,
and will work effectively, even over consumer modems using
dial-up Internet connections.
o ISee3D allows content producers to convert existing film
content to 3D as well as to create original 3D content for
Internet distribution. There is a great deal of 3D content
available for computers via the web, on CD or otherwise.
However, to the Company's knowledge, most of this is computer
generated content. Computer games are a prime example. The
Company believes there is very little stereoscopic 3D content.
ISee3D's technology begins with the camera, not with a
computer program which simulates stereo. Moreover, using the
camera technology developed by ISee3D in the past, live events
can be filmed in 3D.
o The content can be viewed by consumers in 2D without any
special equipment and without any visual distortion. The
encoding is compatible with third party compression formats
and the data stream can be decoded by multimedia players such
as those made by Real Networks and Microsoft. At the same
time, ISee3D will provide an add-in for both of these players
that, along with the hardware to be supplied by ISee3D, will
facilitate the 3D experience.
o Many other 3D systems rely on passive, two (2) color
(anaglyph) glasses. ISee3D's technology will work with those
types of glasses, allowing the consumer to see a 3D image.
ISee3D intends to distribute those glasses for free to
establish a market. However, ISee3D's technology will rely
principally on liquid crystal shutter (LCS) glasses. The LCS
glasses provide a more natural viewing experience by more
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accurately depicting the color of the original and more
closely emulating true human vision. ISee3D plans to sell LCS
glasses in connection with the distribution of its technology.
Components of ISee3D's Technology
The ISee3D system consists of a number of components. The principal
ones are as follows:
o ISee3D's patent pending technology for converting 3D video
images into a compressed digital format compatible with the
Internet protocol, and specifically with the Real Media player
and the Microsoft Windows Media Player.
o Encoders which are specially designed computers will run the
software used to convert 3D video images, no matter what the
initial source, to ISee3D's digital format for transmission.
The encoders will connect to servers to deliver the data over
the Internet.
o A decoder which will be used by the consumer to convert the
digital format back to one which can be viewed on his or her
computer monitor is included in ISee3D's player.
o Liquid crystal shutter glasses which will provide the consumer
with the 3D effect in a manner somewhat similar to the manner
in which it was originally recorded through the Company's
convertor.
The DVU Format and Media Players
The DVU format is the delivery method used by ISee3D in connection with
its United States patent-pending system compression and decompression techniques
which facilitate the transmission of 3D video over the Internet. It is compliant
with third party compression standards, and can be viewed as normal two
dimensional video by those who do not have the ISee3D glasses. It has been
designed to work at bandwidths as low as 56.6 kbps. The decoding software will
operate as a plug-in for the RealNetworks RealPlayer and the Microsoft Windows
Media Player.
ISee3D has entered into arrangements with both Microsoft and
RealNetworks to establish and maintain compatibility of the DVU format with the
respective media players of those companies. With Microsoft, ISee3D has access
to Microsoft technologies through the Microsoft Developer Network and has
established working relationships with Microsoft business and technical
personnel concentrating on multimedia development. Microsoft presented ISee3D's
first live 3D webcast -- the implosion of the Seattle Kingdome in March 2000.
Other than the Windows NT Operating System, Windows SQL Server, other freely
available software and the DVU technology itself, no special hardware or
software is necessary to convert 3D video images into a digital, Windows Media
Player compatible, format which can be streamed over the Internet.
DVU technology is also designed to work RealNetworks' technology.
RealNetworks assisted
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ISee3D in developing the DVU format. In September 1999, ISee3D entered into a
contract with RealNetworks to jointly develop a plug-in to allow RealNetworks'
RealPlayer to work with ISee3D's encoding and decoding technology.
ISee3D has purchased server hardware and software to allow it to create
and transmit both Windows Media and RealNetworks streaming video which has been
enhanced by ISee3D's DVU technology.
Consumer Viewing of 3D Transmissions
Initially, the consumer will have two alternatives for viewing ISee3D's
streaming three dimensional video.
Shutter Glasses Technology and the Line Blanker
At present, the best practical option to view 3D images on a computer
monitor at a reasonable cost is through the use of "Shutter Glasses." Shutter
Glass technology is in the public domain (patent expired) and is currently
available from several manufacturers. The technology involves the use of liquid
crystal devices (LCDs). When LCDs are utilized for 3D viewing they are normally
referred to as liquid crystal shutters (LCS). The two shutters in the glasses
(left and right) are controlled electronically and work to cause a viewer to
perceive an image through only one eye at a time. During operation, each shutter
would be in one of two states, open (transparent) or closed (opaque). At any
discrete point in time, the 2 shutters of the LCS glasses are in opposite
states. For example, an one moment, the left shutter will be open while the
right shutter will be closed, allowing the viewer to see with the left eye only.
In synchronization with the LCS glasses, the monitor will display the image to
be seen by the left eye. A moment later the LCS glasses switch state so that the
left is closed and the right is open. The right eye now sees the image on the
monitor, which, in synchronization with the glasses, has changed to the image
for the right eye. This occurs approximately 120 times per second. This speed is
too fast for the human eye to sense the switching, but in this manner an image
pair may be displayed where the left eye sees the first image and the right eye
sees the second image. The images seen by each of the two eyes are at slightly
different angles. The brain merges the two images and in doing so creates the
perception of 3D. This is the foundation for stereoscopic viewing.
ISee3D will sell Shutter Glasses to consumers along with a "Line
Blanker," a black box device inserted between the viewer's computer and monitor
to create the switching between left and right perspective images on the screen.
These, items along with the software plug-in for the Microsoft Windows Media
Player and the RealNetwork RealPlayers make up the ISee3D "Enabling Kit"
necessary to most fully take advantage of the current state of 3D streaming
video technology. ISee3D anticipates that other companies may also sell Shutter
Glasses and a Line Blanker, and ISee3D intends to make its plug-in separately
available for download so that it can be used with glasses provided by others.
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Anaglyph Glasses
Anaglyph glasses are the red and green glasses, frequently found with
cardboard frames, which many people remember from 3D motion pictures. ISee3D's
technology will work with anaglyph glasses, but will not produce as satisfying
an effect as with shutter glasses.
Future Technologies
ISee3D anticipates that in the future, separate glasses may not be
necessary to view streaming 3D video. ISee3D has seen prototypes of computer
monitors capable of displaying 3D video. ISee3D also believes that in the future
"set top boxes" attached to television monitors may enable televisions to
display 3D images. There can be no assurance if or when such devices will be
available at commercially reasonable prices.
3D CONTENT AND SOURCES
ISee3D anticipates that once a consumer market for 3D Internet viewing
is established, a variety of content providers will want to take advantage of
ISee3D's technology to serve them. These content providers include not only the
owners of the content such as motion picture studios, wishing either to exploit
their existing libraries by converting them into 3D, or, alternatively to create
new 3D content. In the first instance, the studio could go to one of several
companies that have the technology for converting two dimensional images to 3D.
In the second instance, the studio could develop the content itself, or work
with ISee3D to take advantages of the camera technology, ISee3D has previously
developed. Another source of revenue would be sports-related web sites.
Alternatively, ISee3D may establish alliances with the 2D to 3D conversion
companies which in turn would establish the relationship with the content
providers. It can also act as a host for the webcast should a licensee want it
to do so.
ANTICIPATED REVENUE SOURCES
ISee3D expects to receive the bulk of its revenue from licensees of its
software, on a business to business model. Additional revenue may come from
incidental items such as acting as a host for certain events and for assistance
in the creation of new 3D content.
While ISee3D plans to charge consumers for its LCS glasses, the Company
believes that it is more important to build a market than to make a significant
profit from this end of the business. The LCS glasses along with the Blanker Box
will be sold as part of an Enabler Kit at an anticipated price of $30. ISee3D
may give away anaglyph glasses to help encourage consumers to participate in Web
3D. ISee3D hopes that other companies will sell glasses as well to allow the
market to grow more quickly. Consumers who do not purchase the Enabler Kit will
need to obtain a plug-in for the media player. ISee3D plans to offer two
versions of its plug-in, a basic unit which will work only with anaglyph
glasses, and a "full-featured" unit which will work with shutter glasses. Both
will be downloadable over the Internet, The basic unit will be free, the other
(which will be also included in the Enabler Kit) will be sold at a price to be
determined.
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PRINCIPAL CONTRACTS AND RELATIONSHIPS
RealNetworks
On May 5, 1999 ISee3D announced an agreement with, RealNetworks Inc,
("RealNetworks") a leading provider of multimedia enabling software for
computers and the Internet. ISee3D's relationship with RealNetworks will allow
content to be transmitted using the Company's DVU format and viewed using
RealNetwork's multimedia players. Consumers with ISee3D's Enabler Kit (or other
3D viewing equipment such as anaglyph glasses) will be able to enjoy the video
in 3D through the use of a plug-in to the RealNetwork player. Others can still
view the video in 2D
On May 28, 1999 Alan Lippman, Chief Engineer of RealNetworks joined
ISee3D's Internet Advisory Board. With Mr. Lippman's assistance, ISee3D was able
to improve its DVU technology in order to make it work effectively at Internet
transmission speeds as low as 56.6 Kbps. Mr. Lippman left the Internet Advisory
Board on August 20, 1999, a conflict of interest once we become a paying
customer.
On September 16, 1999 ISee3D entered into another agreement with
RealNetwork which allows ISee3D to take advantage of RealNetwork's Real Guide,
RealStore and RealChannel.
Microsoft
In August 1999 ISee3D began development work with Microsoft's Windows
Media Technologies Division, to include support for ISee3D's DVU format in the
Windows Media Player. This relationship led to ISee3D producing the Kingdome
implosion event in March 2000. As with the RealNetworks Player, those with 3D
equipment can view ISee3D's digital video in 3D, other will see it in 2D.
Glasses and Related Hardware
ISee3D does not intend to manufacture any products, itself. In all
cases, ISee3D is not dependent on a single source for its products and would
rather partner with all providers to expand the market. The Company is subject
to potential industry-wide problems such as an industry shortage of parts due to
a natural disaster.
OTHER BUSINESSES
Virtual Movie Maker
With the naming of Eugene Joseph to the position of President of
"ISee3D Inc.", effective June 1st, 2000, and the concomitant transfer of certain
intellectual property assets from Mr. Joseph to the Company, ISee3D intends to
launch a project that it hopes will enable the art of making "Virtual Movies."
ISee3D's "Virtual Movie" Maker is intended to allow virtually anyone to create
movies on their computer. It will feature virtual characters acting and
interacting with other characters, with virtual props and with virtual sets. The
Company believes that Virtual Movie making
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will appeal to the mass market by lowering the entry barrier to artistic
expression. It also believes it will appeal to the professional
pre-visualization market by offering productivity increases. The "Virtual Movie"
Maker is currently in the development stage, and the Company does not expect to
begin any form of distribution before late 2001.
Medical Business
While the Company has refocussed almost all of its attention on new
media, from time to time, the Company is offered projects relating to its former
area of concentration, three dimensional photography. The Company will accept
such projects where appropriate.
COMPETITION
ISee3D does not believe it faces any direct immediate competition in
the transmission of 3D content over the Internet. A number of companies have
announced their intention to provide a mechanism for transmitting streaming 3D
video over the Internet, but to the knowledge of the Company, no one else has
been successful to date.
A number of companies are engaged in the 3D video business. These
include Dynamic digital Depth, Another World and New Entertainment. These
companies focus on the conversion of 2D content to 3D. ISee3D believes their
business complements that of ISee3D. Where possible, ISee3D will seek to partner
with these organizations, to take their product and distribute it. Other
possibilities include cross-licensing arrangements.
A number of companies are offering 3D content for viewing over the
current generation of television equipment. ISee3D believes there are inherent
limitation in this technology. Specifically, ISee3D believes television's 60
Hertz refresh rate is insufficiently fast to avoid the sense of "flicker" when
viewing an image through shutter glasses, as the shutter glasses reduce the
effective refresh rate to 30 Hertz. As the adoption of HDTV evolves, ISee3D
plans to pursue the opportunity to distribute media to the home for viewing on
an HDTV, but will wait and study the adoption rates in order to best understand
the point to enter that market application. Until that time ISee3D will deliver
the media to the home for display on the PC.
Many companies are involved in creating computer generated 3D
non-stereoscopic images for transmission over the Internet or distribution and
sale using other media such as CD-ROMs and DVDs. These companies are extremely
active in the computer game and computer aided design fields. In some instances
their work may be used in commercial films and videos. In these cases, the 3D
perspective is created by the computer, and is not part of the original filmed
image (where a filmed image exists.) ISee3D may compete with some of these
companies in particular instances, especially in the area of commercial film and
video creation.
A company called Dynamic Digital Depth Inc. is engaged specifically in
the conversion of two dimensional film and video to 3D using computer
technology. ISee3D may compete with this company in certain areas. At the same
time, the ISee3D and Dynamic Digital Depth, Inc. have plans to work together on
post-production matters.
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EMPLOYEES
As of May 31, 2000, the Company has 21 full time employees of which
four are in management, 11 are engaged in research and development, 4 are
engaged in marketing and 2 are engaged in administration. The Company has an
agreement with Joel Leonoff, Rory Olsen, Mitchell Garber and Gary Oberman, who
make up the Company's Internet Advisory Board. The Company has also entered into
consulting agreements with Dr. Jason K. Rivers and Steven Blumenthal to assist
the Company in finding potential customers and partners to exploit the medical
applications of the Company's technology. The Company outsources, substantially,
all of its manufacturing and a small portion of its research and development.
None of the Company's employees is represented by a union. The Company considers
its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has its principal place of business located in Westmount,
Quebec, a suburb of Montreal. The Montreal office consists of 6,521 square feet
with a term that expires on March 31, 2004. The monthly rental is $10,325 and
increases to $10,596 on November 01, 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any litigation.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information concerning the
beneficial ownership of the Common Shares or options to purchase common shares
as at June 1, 2000 for each officer and director and each person known by the
Company who beneficially owns more than 5% of the Common Shares.
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Number of Percentage of
Name of Beneficial Shareholder Common Shares Common Shares
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'(1)
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Adelite Communications Corporation 8,000,000(2) 12.36%
Sparten Establishment 5,500,000 8.50%
Morden Lazarus 3,095,000(3) 5.24%
Nigel Horsley 120,710 .19%
Fernand Lalonde 500,000(4) .77%
Jason Rivers 400,000(5) .61%
Doug Lewin 200,000(6) .23%
Sheldon Klein 200,000(7) .30%
Gary Oberman 1,200,000(8) 1.85%
William Henry 350,000(9) .54%
Ron Goldenberg 800,000(10) 1.24%
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Eugene Joseph 1,500,000(11) 1.54%
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All directors and Officers as a Group 8,365,710 13.31%
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(1) As at May 19, 2000 the number of common shares outstanding was 64,700,110.
(2) Includes warrants to purchase 4,500,000 shares at $.15 per share.
(3) Includes options to purchase 3,000,000 shares, including 400,000 shares at
$0.35 per share, 1,000,000 shares at $0.30 per share, 300,000 shares at $1.21 per share and 1,300,000
shares at $1.75 per share. 95,000 shares and 600,000 options of which to purchase shares are owned of
record by Lirojen Enterprises Ltd., a company controlled by Morden Lazarus.
(4) Includes options to purchase 300,000 shares at $.30 per share and 200,000 shares at $1.28 per share.
(5) Includes options to purchase 400,000 shares at $1.06 per share.
(6) Includes options to purchase 200,000 shares at $0.75 per share.
(7) Includes options to purchase 200,000 shares at $1.75 per share.
(8) Includes options to purchase 1,200,000 shares at $1.75 per share.
(9) Includes options to purchase 350,000 shares at $0.87 per share.
(10) Includes options to purchase 800,000 shares at $2.15 per share.
(11) Includes options to purchase 1,000,000 shares at $0.75 per share.
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ITEM 5. NATURE OF TRADING MARKET
The Common Shares of the Company are traded on the Canadian Dealing
Network(CDN) in Ontario, Canada and, as of April 11, 2000, are traded on the
"pink sheets" in the United States.
The following table sets forth the reported low and high bid prices for
the Common Shares of the Company as quoted on the CDN on a quarterly basis for
the years 1997, 1998 and 1999 and the quarters ended June 30, 2000. All figures
are in Canadian Dollars.
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Quarter High Low
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1997-- First quarter: $1.15 $0.32
Second quarter: $0.57 $0.28
Third quarter: $0.50 $0.29
Fourth quarter: $0.38 $0.13
1998--First quarter: $0.28 $0.09
Second quarter: $0.19 $0.09
Third quarter: $0.11 $0.02
Fourth quarter: $0.12 $0.03
1999-- First quarter: $0.85 $0.07
Second quarter: $2.35 $0.49
Third quarter: $1.53 $0.70
Fourth quarter: $1.20 $0.61
2000 - First quarter $3.10 $0.71
Second quarter $1.50 $0.20
At May 19, 2000, the Company had 64,700,110 Common Shares
issued and outstanding and 16,000 record owners.
The Company has not paid dividends to its shareholders to
date. The Company's policy at the present time is to retain earnings for
corporate purposes. The payment of dividends in the future will depend on the
earnings and financial conditions of the Company and such other factors as the
Board of Directors of the Company may consider approximate. Since the Company is
currently in an expansion stage, it is unlikely that earnings will be available
for the payment of dividends in the near future.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS
There is no law or government decree of regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non- resident holder of Common
Shares, other than withholding tax requirements. See "Item 7 - Taxation."
There is no limitation imposed by Canadian law or by the articles or
other charter documents of the Company on the right of a non-resident to hold or
vote Common Shares of the Company, other than as provided in the Investment
Canada Act, as amended (the "Investment Act").
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless, after review the Minister responsible
for the Investment Act is satisfied that the investment is likely to be of net
benefit to Canada. If an investment by a non-Canadian is not a reviewable
investment, it nevertheless requires
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the filing of a short notice which may be given at any time up to 30 days after
the implementation of the investment.
An investment in Common Shares of the Company by a non-Canadian that is
a "WTO investor" (an individual or other entity that is a national of, or has
the right of permanent residence in, a member of the World Trade Organization,
current members of which include the European Community, Germany, Japan, Mexico,
the United Kingdom and the United States, or a WTO investor-controlled entity,
as defined in the Investment Act) would be reviewable under the Investment Act
if it were an investment to acquire direct control, through a purchase of assets
or voting interests, of the Company and the value of the assets of the Company
equaled or exceeded $192 million, the threshold established for 2000, as
indicated on the financial statements of the Company for its fiscal year
immediately preceding the implementation of the investment. In subsequent years,
such threshold amount may be increased or decreased in accordance with the
provisions of the Investment Act.
An investment in Common Shares of the Company by a non-Canadian, other
than a WTO investor, would be reviewable under the Investment Act if it were an
investment to acquire direct control of the Company and the value of the assets
were $5.0 million or more, as indicated on the financial statements of the
Company for its fiscal year immediately preceding the implementation of the
investment.
A non-Canadian, whether a WTO investor or otherwise, would acquire
control of the Company for the purposes of the Investment Act if he, she or it
acquired a majority of the Common Shares of the Company or acquired all or
substantially all of the assets used in conjunction with the Company's business.
The acquisition of less than a majority, but one-third or more of the Common
Shares of the Company, would be presumed to be an acquisition of control of the
Company unless it could be established that the Company was not controlled in
fact by the acquirer through the ownership of the Common Shares.
The Investment Act would not apply to certain transactions in relation
to Common Shares of the Company, including:
(a) an acquisition of Common Shares of the Company by any
person if the acquisition were made in the ordinary
course of that person's business as a trader or
dealer in securities;
(b) an acquisition of control of the Company in
connection with the realization of security granted
for a loan or other financial assistance and not for
any purpose related to the provisions of the
Investment Act; and
(c) an acquisition of control of the Company by reason of
an amalgamation, merger, consolidation or corporate
reorganization following which the ultimate direct or
indirect control in fact of the Company, through the
ownership of voting interests, remains unchanged.
11
<PAGE>
ITEM 7. TAXATION
The following is a summary of the material Canadian federal income tax
considerations, as of the date hereof, generally applicable to security holders
who deal at arm's length with the Company, who, for purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and any applicable tax treaty or
convention, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held shares of the Company, to whom such
shares are capital property, and to whom such shares are not "taxable Canadian
property" (as defined in the Canadian Tax Act). This summary does not apply to a
non-resident insurer.
Generally, shares of the Company will be considered to be capital
property to a holder thereof provided that the holder does not use such shares
in the course of carrying on a business and has not acquired them in one or more
transactions considered to be an adventure in the nature of trade. All security
holders should consult their own tax advisors as to whether, as a matter of
fact, they hold shares of the Company as capital property for the purposes of
the Canadian Tax Act.
This discussion is based on the current provisions of the Canadian Tax
Act and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention (the "Tax Treaty") and current published
administrative practices of the Canada Customs and Revenue Agency. This
discussion takes into account specific proposals to amend the Canadian Tax Act
and the regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form. No assurances can be given that the Proposed Amendments will
be enacted in the form proposed, if at all; however the Canadian federal income
tax considerations generally applicable to security holders described herein
will not be different in a material adverse way if the Proposed Amendments are
not enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE INTENDED TO ADDRESS ALL MATERIAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS, THIS SUMMARY IS OF A GENERAL NATURE ONLY. THEREFORE, SECURITY
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
Generally, shares of the Company will not be taxable Canadian property
at a particular time provided that such shares are listed on a prescribed stock
exchange (which exchanges currently include the Toronto Stock Exchange), the
holder does not use or hold, and is not deemed to use or hold, the shares of the
Company in connection with carrying on a business in Canada and the holder,
persons with whom such holder does not deal at arm's length, or the holder and
such persons, has not owned (or had under option) 25% or more of the issued
shares of any class or series of the capital stock of the Company at any time
within five years preceding the particular time.
12
<PAGE>
A holder of shares of the Company that are not taxable Canadian
property will not be subject to tax under the Canadian Tax Act on the sale or
other disposition of shares.
Dividends paid or deemed to be paid on the shares of the Company are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25%, although such rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Tax Treaty, the rate is
reduced to 5% in respect of dividends paid to a company that is the beneficial
owner thereof, that is resident in the United States for purposes of the Tax
Treaty and that owns at least 10% of the voting stock of the Company. In all
other cases, the rate is reduced to 15% in respect of dividends paid to the
beneficial owner thereof, that is resident in the United States for purposes of
the Tax Treaty.
ITEM 8. SELECTED FINANCIAL DATA
Set forth below is selected financial information for the years ended
December 31, 1995-1999 derived from the Audited Financial Statements of the
Company prepared in accordance with Canadian G.A.A.P. These principals as
applied to the Company do not differ materially from U.S. G.A.A.P. except as
disclosed in Note 18 to the Company's Financial Statements. All figures are in
Canadian funds. This information should be read in conjunction with the
Company's Financial Statements included in this Registration Statement.
13
<PAGE>
<TABLE>
<CAPTION>
Statement of
Earnings and For the three months ending
Deficit March 31 For the year ending December 31,
(In Canadian
Dollars) 2000 1999 1999 (Restated) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 8,232 $ 60,311 $ 211,276
Cost of sales $ 6,214 $ 57,228 $ 177,206
-------------- ------------- --------------
Gross profit $ 2,018 $ 3,083 $ 34,070
-------------- ------------- --------------
Selling, general &
administrative
expenses $ 1,116,526 $ 269,572 $ 3,620,887 $ 842,161 $ 1,062,973 $ 1,338,106 $ 1,521,266
Depreciation &
amortization $ 55,945 $ 7,110 $ 129,921 $ 34,843 $ 44,942 $ 144,559 $ 93,716
Interest $ 5,700 $ 6,029 $ 19,789 $ 6,682 $ 8,877 $ 24,116 $ 15,556
Research&
development $ 17,967 $ 21,389 $ 632,509 $ 120,140 $ 184,501 $ 113,854 $ 322,351
-------------- ----------- ------------- ------------ ------------ --------------
$ 1,196,138 $ 304,100 $ 4,403,106 $ 1,003,826 $ 1,301,293 $ 1,620,635 $ 1,952,889
-------------- ----------- ------------- ------------ ------------ --------------
Operating loss $ (1,194,120) $(304,100) $(4,403,106) $ (1,000,743) $ (1,301,293) $ (1,620,635) $ (1,918,819)
Interest & other
income $ 37,377 $ 92,242 $ 4,819 $ 9,285 $ 15,805 $ 106,071
-------------- --------------
Dispute settlement
Write-down of
assets $ 50,648 $ 115,000 $ 35,532 $ 593,363
----------- ------------- ------------ ------------
Net loss $ (1,156,743) $(304,100) $(4,361,512) $ (1,110,924) $ (1,327,540) $ (2,198,193) $ (1,812,748)
=============== ========= =========== ============= ============ ============ ============
Basic loss per
share $ (0.02) $ (0.01) $ (0.08) $ (0.04) $ (0.05) $ (0.12) $ (0.16)
Weighted average
# of shares
outstanding 56,009,672 34,235,777 51,475,610 29,485,777 24,733,815 18,013,064 11,329,675
Balance Sheet Data
Cash $ 3,907,802 $ 236,179 $ 4,187,248 $ (44,547) $ 454,821 $ 87,686 $ 1,242,029
Capital assets $ 1,043,775 $ 243,435 $ 762,895 $ 210,396 $ 228,230 $ 198,219 $ 499,204
Capital Leases $ 3,371 $ 3,264 $ 9,816 $ 20,338 $ 24,037
Shareholders'
equity $ 4,986,614 $ 18,472 $ 4,657,224 $ (302,426) $ 658,498 $ (36,080) $ 2,221,502
</TABLE>
EXCHANGE RATE
CURRENCY AND EXCHANGE RATES
All dollar amounts set forth in this Registration Statement are in Canadian
dollars, except whether otherwise indicated. The following table sets forth (i)
the rates of exchange for the Canadian dollar, expressed in United States
dollars, in effect at the end of each of the December 31 fiscal year periods
indicated; (ii) the average exchange rates based on the last day of each month
during such periods; and (iii) the high and low exchange rate during such
periods, in each case based on the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York.
14
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING 1999 1998 1997 1996 1995
------------------ ---- ---- ---- ---- ----
DECEMBER 31
-----------
<S> <C> <C> <C> <C> <C>
Rate at End of Period $1.4433 $1.5330 $1.4305 $1.3760 $1.3725
Average Rate During Period $1.4858 $1.4831 $1.3843 $1.3636 $1.3726
High Rate $1.5845 $1.4399 $1.3865 $1.4267 $1.5475
Low Rate $1.0000 $1.3345 $1.3287 $1.3275 $1.4420
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company, since 1986, has been involved in the development and
implementation of 3D imaging systems for use in several industries including
medical, subsea, nuclear, space and hazardous materials handling.
With the growth of the Internet, and more significantly, streaming
video, over the last several years, the Company has recognized a new, and
broader use for its technology-the creation of three dimensional video which can
be transmitted over the World Wide Web. The Internet marketplace is infinitely
broader and far less regulatory than others. In March 1999 the Company
established an Internet Advisory Board to guide the Company in providing this
technology in a commercially feasible manner.
The following discussion and analysis provides a review of the
activities, results of operations and financial condition of Isee3D, Inc. for
the period ended March 31, 2000 compared to the period ended March 31, 1999 as
well as year ended December 31, 1999 in comparison with the year ended December
31, 1998, and the year ended December 31, 1998 in comparison with the year ended
December 31, 1997. This discussion should be read in conjunction with the
Company's audited financial statements for 1997, 1998 and 1999. All amounts are
in Canadian dollars unless otherwise stated.
Results of Operations
Period Ended March 31, 2000 Compared to the Period Ended March 31, 1999
The net loss for the period ended March 31, 2000 was $1,156,743 or a
loss of $0.02 per share compared to a net loss of $304,100 or a loss of $0.01
per share in the period ended March 31, 1999. The reason for the increased loss
in the period ended March 31, 2000 was that the Company was fully staffed and
into development of its internet streaming 3D technology.
15
<PAGE>
Sales were minimal in this quarter ($8,232), representing shipment of
the Company's LCS Shutter Glasses, compared to no sales in the first quarter of
1999.
General and administrative expenses increased to $1,116,526 from
$269,572 in the first quarter of 1999 and were comprised primarily of consulting
expense for outside expertise, salaries for software engineers and other staff,
rent for the Company's premises in Westmount and Burnaby and the cost of
postage, printing and mailing.
Amortization of capital assets increased to $55,945 in the first
quarter of 2000 from $7,110 in the same quarter last year due to the increase in
capital assets over the year.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31,1998
The net loss for the year ended December 31, 1999 ("1999") was
$4,361,512 or a loss of $0.08 per share compared to a net loss of $1,110,924 or
a loss of $0.04 per share for the year ended December 31, 1998("1998"). The
increase in research and development initiatives to capitalize on the Company's
entry into the new Internet marketplace was the major factor for the increase in
the net loss in 1999 versus 1998.
The Company, being in a development stage, did not have any revenues in
1999 as compared to 1998 when the company had revenues of $60,311.
Selling, general and administrative expenses were $3,620,887 in 1999
compared to $842,161 in 1998 or an increase of $2,778,726. There were several
areas of operation that contributed to the increase in these expenses. Salaries
and benefits increased by approximately $440,000 due to the hiring of additional
personnel in software engineering. Professional fees increased by approximately
$682,000 due primarily to various legal proceedings instituted by the
Company(which were settled prior to year-end) to defend its rights. Consulting
fees increased by approximately $1,719,000 to $1,864,000 which included $969,000
in deferred compensation to the Internet Advisory Board, fees of $368,000 for
investor relations related to the cashing-in of warrants and consulting fees of
approximately $220,000 to Companies controlled by the C.E.O. and the former
President for contractual services provided to the Company. Marketing and
printing costs increased by approximately $250,000 as a direct result of the
increase in the shareholder base of the Company.
Depreciation and amortization expense increased from $34,843 in 1998 to
$129,921 in 1999. This was due in the most part to the addition of new computer
equipment.
Research and development expenses increased to $632,509 in 1999 from
$120,140 in 1988. The Company was involved in several special projects in 1999
with major technological partners to develop and market its proprietary
products.
Interest and other income increased by $87,423 in 1999 compared to 1998
with most of the increase in interest income arising as a result of the proceeds
from the sale of share capital during 1999.
16
<PAGE>
During 1999 the Company wrote down the value of its medical parts
inventory to nil due to the new Internet strategy of the Company.
Year Ended December 31, 1998 Compared to the Year Ended December 31,1997
Net loss for 1998 was $1,110,924 or a loss of $0.04 per share as
compared to a loss of $1,327,540 in 1997 or a loss of $0.05 per share. The
Company rationalized expenses in 1998 with moderate success.
The Company had minimal sales revenue in 1998 of $60,311 compared to no
revenue in 1997. This is due to the fact that 1998 was a year of consolidation
for the Company.
Selling, general and administrative expenses decreased by $220,812 in
1998 from $1,062,973 in 1997 to $842,161 in 1998. Salaries and benefits and
travel expenses accounted for the decrease as the headcount was reduced
throughout the year. Other selling, general and administrative expenses stayed
relatively stable over the two years.
Depreciation and amortization decreased by $10,099 due to the age of
the capital assets.
Research and development expenses decreased from $184,501 in 1997 to
$120,140 in 1998 or by $64,361.
During 1998 the Company settled a law suit for $115,000 which increased
its expenses by that amount compared to 1997 when no such settlements were made.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations by cash provided by
financing activities including the sale of its shares via private placement and
the conversion of preference shares, debentures, options and warrants.
During 1997, the Company raised net proceeds of $2,207,937 by the
issuance of share capital via private placements and upon the conversion of
preference shares. During 1998, financing activity resulted in $150,000 being
received pursuant to the conversion of a debenture. During 1999, the Company
raised net proceeds of $8,352,162 pursuant to private placements and the
conversion of warrants and options. During the first quarter of 2000 the Company
raised net proceeds of $1,113,000 upon the conversion of warrants and options
into common shares.
Although most of the use of funds from 1997 to March 2000 was to fund
operations, the Company did purchase capital assets for $223,195, $797,966,
$17,009 and $110,472 in 2000, 1999,1998 and 1997 respectively.
Working capital improved to $3,942,839 at March 31, 2000 from a working
capital deficiency of $221,592 at March 31, 1999.
17
<PAGE>
If the Company's current cash position is not sufficient to meet the
Company's needs, the Company may from time to time seek to raise capital from
additional sources, including project specific financing, conversion of existing
warrants or from public or private debt or equity financing. The Company
believes that its existing resources will be sufficient to fund the Company for
at least the next twelve months.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 10. DIRECTORS AND OFFICERS
The following table lists the directors and officers of the Company as of March
31, 2000:
Name Age Position (and year of
commencement)
Morden C. Lazarus: 58 Director (1996), Chief
Executive Officer,
Chairman of the
Board(1998)
Fernand Lalonde 67 Director (1998)
Q.C.:
Dr. Jason K. Rivers: 44 Director (1999)
Douglas P. Lewin: 30 Director (2000)
Sheldon Klein: 67 Director (2000)
Nigel Horsley: 52 Director (2000)
Eugene Joseph: 48 Director and President
(2000)
William Henry: 30 Chief Technology Officer
(1996)
Ron Goldenberg: 44 Chief Financial Officer
(2000)
MORDEN C. LAZARUS
Mr. Lazarus joined the Company as a Director in July, 1996 and became
Chief Executive Officer and Chairman in May, 1999. Mr. Lazarus is also the
Managing Partner of Lazarus Charbonneau, a law firm. He has been either the Sole
Proprietor or the Managing Partner of this firm since 1967. Mr. Lazarus has a
B.C.L. in Law from McGill University. He is on the Board of
18
<PAGE>
Directors of Neuro-Biotech Corporation, Eiger Technologies Inc. and United Totes
(Canada) Inc., a subsidiary of Anchor Gaming Ltd.
FERNAND LALONDE Q.C.
Mr. Lalonde was appointed Director of the Company in July, 1998. Since
1995, he has been Counsel at the law firm of Leduc, Leblanc. Prior to that he
was a Partner at the law firm of Ahern, Lalonde, Nuss & Drymer. Mr. Lalonde sits
on the Board of Director at Societe Denergy Foster Wheeler Inc. and Air Canada.
He has a Bachelor's Degree in Arts and a LL.B. in Law, both from the University
of Montreal.
DR. JASON K. RIVERS
Dr. Rivers has been a Director of the Company since May, 1999. Between
1994 and 1999, Dr. Rivers was Associate Professor at the University of British
Columbia focusing on Clinical Research in Dermatology and a Director of the
Residency Program. Dr. Rivers has a B.S.C. in Science from the University of
Toronto, an M.D. in Medicine from the University of Ottawa and a F.R.C.P.C. in
Dermatology from the University of Ottawa.
DOUGLAS P. LEWIN
Mr. Lewin was appointed Director of the Company in February 2000. Mr.
Lewin has served as a Director on the Board and officer of numerous companies
including: Vice-President of Transaction Services of Surefire Commerce Corp.
since October of 1999; Director of Business Development of BCE Emergis from 1998
through 1999; and Director of Leasing Asset Management of Magil Laurentian
Realty Corp., between 1995 through 1998.
SHELDON KLEIN
Mr. Klein was appointed Director of the Company in February, 2000. Mr.
Klein also serves as President to Hasbro Canada Inc. and Hasbro Latin America.
Mr. Klein is in charge of worldwide operations of Hasbro Inc. in Canada, Mexico,
South and Central America since March, 1993.
EUGENE JOSEPH
Mr. Joseph became President of the Company on June 1, 2000. Prior to
joining the Company Mr. Joseph was employed as the Chief Technology Officer of
Virtual Prototypes Inc. between December 1995 and April 1999. Between February
1999 and April 2000, Mr. Joseph was the President of North Side Ventures Ltd.,
which provided strategic consulting services to companies in the high technology
software industry. Mr. Joseph has a degree in Mathematics and Computer Science
from the University of Tel-Aviv. Mr. Joseph also serves as Director on the Board
of Virtual Prototypes Inc.
RON GOLDENBERG
19
<PAGE>
Mr. Goldenberg became Vice President and Chief Financial Officer to the
Company on February 21, 2000. Mr. Goldenberg has been appointed various
positions, including Executive Vice President, Chief Financial Officer and
Director of Grand Toys International Inc. since 1986 through 1999.
ROBERT NIGEL MARCUS HORSLEY
Mr. Horsley became Vice-President of the Company in April, 1993, and
General Manager of the Company in December, 1998. Between June, 1995 and June,
1996, Mr. Horsley was also Vice Chairman of Tamarine Ventures, where he was
responsible for Business Development. Mr. Horsley is also a Director of Rail
Power Technology Inc.
WILLIAM HENRY
William Henry joined the Company in February, 1995. He was Design
Engineer from February, 1995 to April, 1996, at which point he became
Engineering Project Manager. In December, 1997 he became Engineering Manager, a
position that he held through March, 1999 when he became the Chief Technology
Officer. Mr. Henry has a degree in Electronic Engineering from the British
Columbia Institute of Technology.
Employment Contracts
The Company has entered into an executive employment agreement (the
"Executive Agreement") with Eugene Joseph, President and Chief Operating
Officer, effective June 1, 2000. The Executive Agreement is due to expire May
31, 2005 and may be renewed upon the discretion of the board of directors of the
Company. Pursuant to the Executive Agreement Mr. Joseph is to be paid an
incremental base salary commencing at, $160,000 during the first year of
employment, $170,000 during the second year of employment, $180,000 during the
third year of employment, $190,000 during the fourth year of employment and
$200,000 during the fifth year of employment. The Executive Agreement may be
terminated for cause on the giving of 5 days notice. In addition, the Executive
Agreement entitles Mr. Joseph to employee stock option package as indicated on
the stock option plan chart in Item 12.
The share of compensation to be awarded to Mr. Joseph under the
Executive Agreement consists of: (i) 1,000,000 stock options of the Company at
an exercise price of $0.75; (ii) up to 5,000,000 common shares for each $10.00
of the Company's gross revenues realized from the exploitation of the unique
content provided to the Company up to a maximum of $50,000,000 during the term
of the Executive Agreement and; (iii) up to 3,000,000 common shares for every
$3.00 of gross profit earned by the Corporation during the term of the Executive
Agreement which can be granted to Joseph.
The Company has entered into a consulting agreement with Lirojen
Enterprises Ltd. which is a company controlled by Morden C. Lazarus, Chief
Executive Officer and Chairman of the Board, dated April 1, 2000. The agreement)
commenced April 1, 2000 for a one year period renewable at
20
<PAGE>
the option of Lazarus. It calls for an annual compensation of $180,000 and a
stock option grant disclosed elsewhere in this document. Lirojen Enterprises is
permitted under the agreement to accept retainers from parties other than the
Company provided that such retainers do not materially interfere with Lirojen's
obligations to the Company.
BOARD COMMITTEES
The Company did not have a Compensation or an Audit Committee during
1999. The duties of such committees were carried out by the Board of Directors
of the Company. The Board of Directors meets on compensation and audit matters
as required.
DIRECTORS' AND OFFICERS' INSURANCE
The Company currently maintains liability insurance for directors and
officers of the Company in the amount of $3,000,000.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Company's
Chief Executive Officer and the other two most highly compensated executive
officers for the fiscal years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Name and Principal Other Annual Options/SARs Restricted Shares or LTIP All Other
Position Year Salary Bonus Compensation Granted Restricted Share Unit Payout Compensation
-------- ---- ------ ----- ------------ ------- --------------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORDEN C. LAZARUS,
Chairman, President &
C.E.O.(1) 1999 $120,000 1,600,000(2)
1998
1997 400,000
GARY OBERMAN(3),
President & C.O.O. 1999 $52,000 $120,000(4) 2,000,000(5)
1998
1997
BRUCE P. LAWRENCE(6),
President & C.E.O. 1999
1998 $210,000
1997 $180,000 400,000(7)
</TABLE>
21
<PAGE>
(1) Morden C. Lazarus was appointed Chairman, President and Chief Executive
Officer of the Corporation on December 4, 1998. Gary Oberman was
appointed President on May 15, 1999 to replace Morden C. Lazarus in
that capacity. See Note 3. For fiscal 1998 Bruce P. Lawrence served as
President and Chief Executive Officer up to and including December 4,
1998.
(2) Of the 1,600,000 options, 1,000,000 were granted to Morden C. Lazarus
and 600,000 were granted to Lirojen Enterprises Ltd. ("Lirojen"), a
company controlled by Morden Lazarus, 300,000 of which were granted
under the previous stock option plan of the Corporation. The remaining
options to Mr. Lazarus and Lirojen were approved at the annual and
special meeting of shareholders of the Corporation held on February 25,
2000.
(3) Gary Oberman was replaced as President and C.O.O. by Eugene R. Joseph
effective June 1, 2000.
(4) Paid to Mr. Oberman's consulting company, Intunix Inc., for consulting
services rendered.
(5) Of the 2,000,000 options, 1,000,000 options were granted to Mr.
Oberman's consulting company Intunix Inc., in February, 1999 under a
consulting agreement with the Corporation, which options granted to
Intunix were exercised in May 1999. See "Option Grants". The 1,000,000
options granted to Mr. Oberman personally received shareholder approval
at the annual and special meeting of shareholders held on February 25,
2000 but were cancelled unexercised in February 2000. The remaining
1,000,000 options were granted to Mr. Oberman when he became President
and C.O.O. in May 1999. Mr. Oberman was granted 1,200,000 options at
$1.75 per share in February 2000 in his capacity as President and
C.O.O. Since effective June 1, 2000 Gary Overman is to be replaced as
President and C.O.O. by Eugene R. Joseph, Mr. Oberman will have until
June 30, 2000 , under the terms of the Corporation's Stock Option Plan,
to exercise these options. It is intended that Mr. Oberman be retained
as a consultant by the Corporation subsequent to June 1, 2000 and that
further options will be granted to him at a price no lower than $1.75
per share, subject to applicable regulatory approval, pursuant to a
consulting agreement to be entered into between Mr. Oberman and the
Corporation.
(6) Bruce P. Lawrence was appointed President and Chief Executive Officer
of the Corporation on November 7, 1996 and resigned on December 4,
1998.
(7) According to the information available to management, 400,000 options
were granted to Bruce P. Lawrence in 1997 and expired unexercised.
The total cash remuneration paid or accrued during Fiscal 1999 to all
members of management (all directors, executive officers and any other key
personnel who were employed by the Company or its subsidiaries or retained on a
consulting basis) was $392,000.
COMPENSATION TO DIRECTORS
During the year 1999 the directors received no fees for meetings of the
Board or a committee of the Board which they attended. In addition, no benefits
were paid and no benefits are proposed to be paid to any of the directors and
officers of the Company under any pension or retirement plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
22
<PAGE>
STOCK OPTION GRANTS
The following table sets forth details with respect to the outstanding
options and warrants as of December 31, 1999.
<TABLE>
<CAPTION>
Market Value of
Number of Percentage of Securities
Securities Total Options Underlying
Under Granted to Exercise or Options on the Expiration
Options Employees in Base Price date of Grant Date
Name Granted Financial Year ($/Security) ($/Security) (yy/mm/dd)
---- ---------- -------------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
MordenC. Lazarus(1) 1,000,000 9.5% $0.30 $0.30 04/03/17
300,000 2.8% $0.74 $0.74 020/4/01
300,000 2.8% $1.21 $1.21 02/07/01
Gary Oberman 250,000 2.3% $0.10 $0.10 99/12/31
250,000 2.3% $0.15 $0.15 00/12/31
250,000 2.3% $0.20 $0.20 01/12/31
250,000 2.3% $0.30 $0.30 02/12/31
250,000 2.3% $3.00 $3.00 00/12/31
250,000 2.3% $4.00 $4.00 01/12/31
250,000 2.3% $5.00 $5.00 02/12/31
250,000 2.3% $6.00 $6.00 03/12/31
</TABLE>
As at March 31, 2000 all directors and officers as a group hold options
to purchase 8,365,710 common shares of the Company.
The Company has adopted a stock option plan, which was approved by the
Company's shareholders in 1994. In June 2000, the plan was amended to increase
the number of shares reserved for issuance to 18,000,000. The Plans were
established to provide incentives to qualified parties to increase their
proprietary interest in the Company and thereby encourage their continuing
association with the Company. The Plan is administered by the Directors of the
Company. The Plan provides that options will be issued to directors, officers,
employees and consultants of the Company or its subsidiaries pursuant to option
agreements (the "Option Agreements""). The Option Agreements provide for the
expiration of such options on a date not later than ten years after the issuance
of such option.
Options issued pursuant to the Plan have an exercise price as
determined by the Board of Directors of the Company, provided that the exercise
price shall not be less than the closing sale price of such shares on the
Canadian Dealing Network on the trading day immediately preceding the day on
which the option is granted.
In the 1999 fiscal year, options were granted to directors, officers
and employees to acquire up to an aggregate of 7,052,500 Common Shares.
23
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The Company has entered into a Memorandum of Transfer and
Assignment Agreement (the "Purchase Agreement") with 2904802 Canada Inc.
("2904802") a corporation controlled by Eugene Joseph whereby 2904802 will sell
to the Company certain intellectual property assets for the purpose of
exploiting the Company's 3D proprietary technology in the development of
innovative tools for the creation of unique 3D content which will complement the
Corporation's current 3D stream in technology ("Unique Content"). Pursuant to
the Purchase Agreement, the Company will issue to 2904802 a total of 500,000
common shares at a price of $0.75 per common share in exchange for such
intellectual property assets.
The Company has entered into a consulting agreement with
Lirojen Enterprises Ltd. which is a company controlled by Morden C. Lazarus,
Chief Executive Officer and Chairman of the Board, dated April 1, 2000. The
agreement) commenced April 1, 2000 for a one year period renewable at the option
of Lazarus. It calls for an annual compensation of $180,000 and a stock option
grant disclosed elsewhere in this document. Lirojen Enterprises is permitted
under the agreement to accept retainers from parties other than the Company
provided that such retainers do not materially interfere with Lirojen's
obligations to the Company.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Common Shares
The Company's capital consists of an unlimited number of Common Shares
without par value and as of May 19, 2000, the Company had 64,700,110 Common
Shares issued and outstanding.
Holders of the Company's Common Shares:
o have equal ratable rights to dividends from funds legally
available for payment of dividends when, as and if declared by
the board of directors;
o are entitled to share ratably in all of the assets available
for distribution to holders of Common Shares upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund.
PART III
24
<PAGE>
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
Not applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
See Item 19(a). Pages F-1 through F-41 are incorporated by reference.
ITEM 18. FINANCIAL STATEMENTS
The Company has elected, pursuant to instruction G(c) to Form 20-F, to
provide financial statements pursuant to Item 17.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements of Isee3D Inc.
<TABLE>
<CAPTION>
Page No.
--------
Isee3D Inc.
-----------
Fiscal Years Ended December 31, 1999 and 1998
<S> <C>
Auditors Report...............................................................................F-1
Statement of Operations.......................................................................F-2
Balance Sheet.................................................................................F-3
Statement of Shareholders' Equity.............................................................F-4
Statement of Cash Flows.......................................................................F-5
Notes to Financial Statements.................................................................F-6
Period Ended March 31, 2000
Balance Sheet................................................................................F-22
Statement of Operations......................................................................F-24
Statement of Cash Flows......................................................................F-25
Notes to Financial Statements................................................................F-27
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits
--------
<S> <C>
1.1 Articles of Incorporation for Shadow Resources Ltd. dated February 9, 1981
1.2 Articles of Amendment dated February 15, 1990 authorizing the increase of the
Common Stock of Shadow Resources Ltd.
1.3 Articles of Amendment dated April 6, 1990 for name change from Shadow Resources
Ltd. to Docu-Fax International Inc.
1.4 Articles of Amendment dated September 12, 1994 for name change from Docu-Fax
International Inc. to International Telepresence (Canada) Inc.
1.5 Articles of Amendment for International Telepresence (Canada) Inc. dated October
26, 1995
1.6 Articles of Amalgamation of International Telepresence (Canada) Inc. dated October
15, 1997
1.7 Articles of Amendment dated April 30, 1999 for name change from International
Telepresence (Canada) Inc. to Isee3D Inc.
1.8 Articles of Amendment for Isee3D Inc. dated February 29, 2000
1.9 General By-Laws No. 1
1.10 Borrowing By-Laws No. 2
3.1 Agreement of Lease between Sitq Bureaux Inc., Rulim Inc., Immenbles Regime Inc.
and Isee3D Inc. dated November 19, 1999
3.2 Option Agreement for certain International Telepresence (Canada) Inc. Employees
3.3 International Telepresence (Canada) Inc. Stock Option Plan # 1
3.4 International Telepresence (Canada) Inc. Stock Option Plan # 2
3.5 Amended and Restated Stock Option Plan
3.6 Contract for Consulting Services by and among International Telepresence (Canada)
Inc., Lirojen Enterprises Ltd. and Morden C. Lazarus dated April 1 , 1999
3.7 Addendum to Contract for Consulting Services by and among International
Telepresence (Canada) Inc., Lirojen Enterprises Ltd. and Morden C. Lazarus dated
June 18, 1999
3.8 Revised Addendum to Contract for Consulting Services by and among International
Telepresence (Canada) Inc., Lirojen Enterprises Ltd. and Morden C. Lazarus dated
June 18, 1999
3.9 Executive Employment Agreement between Eugene Joseph and Isee3D Inc. effective
June 1, 2000
3.10 International Telepresence (Canada) Inc. Unsecured Non-Interest Bearing Convertible
Debenture payable to Groupe Albatros International Inc. due September 10, 2000
3.11 International Telepresence (Canada) Inc. Unsecured Non-Interest Bearing Convertible
Debenture payable to Adelite Communications Corporation due September 10, 2000
3.12 Warrant to purchase 3,000,000 Shares of Common Stock of Isee3D Inc. in favor of
Northern London Holdings Corp. expiring December 3, 2000
3.13 Memorandum of Transfer and Assignment Agreement between 2904802 Canada Inc.
and Isee3D Inc. dated May 15, 2000
27.1 Financial Data Schedule
</TABLE>
26
<PAGE>
SIGNATURES
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.
Isee3D Inc.
By: /s/ Morden Lazarus
-----------------------------------
Morden Lazarus
Chief Executive Officer
By: /s/ Ron Goldenberg
-----------------------------------
Ron Goldenberg
Chief Financial Officer
Date: July 12, 2000
27
<PAGE>
Deloitte & Touche LLP
Chartered Accountants 1 Place Ville-Marie
Suite 3000
Montreal QC H3B 4T9Telephone: (514) 393-7115
Facsimile: (514) 390-4111
AUDITORS' REPORT
To the Shareholders of
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
We have audited the balance sheet of Isee3D, Inc. (formerly International
Telepresence (Canada) Inc.) as at December 31, 1999 and the statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and the
results of its operations and its cash flows for the year ended December 31,
1999, in accordance with Canadian generally accepted accounting principles.
As discussed in Note 4, the accompanying financial statements for the year ended
December 31, 1999 have been restated.
The financial statements as at December 31, 1998 and for the years ended
December 31, 1998 and 1997 were audited by other auditors who expressed an
opinion without reservation on those financial statements in their report dated
May 7, 1999.
/s/ Deloitte & Touche LLP
Chartered Accountants
Montreal, Quebec
March 24, 2000 (June 21, 2000 as to Note 4)
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCE
To the Shareholders of
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 and Note 18 to the financial statements. Our report to the Shareholders
dated March 24, 2000 (June 21, 2000 as to Note 4), is expressed in accordance
with Canadian reporting standards which do not permit a reference to such events
and conditions in the auditors' report when these are adequately disclosed in
the financial statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Montreal, Quebec
March 24, 2000 (June 21, 2000 as to Note 4)
F-1
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Statement of operations
years ended December 31,
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
===================================================================================================================
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
$ $ $
(Restated)
<S> <C> <C> <C>
Sales - 60,311 -
Cost of sales - 57,228 -
-------------------------------------------------------------------------------------------------------------------
- 3,083 -
Expenses
General and administrative 3,620,887 842,161 1,062,973
Research and development 632,509 120,140 184,501
Amortization of capital assets 129,921 34,843 44,942
Interest 19,789 6,682 8,877
Dispute settlement - 115,000 -
Write-down of inventory 50,648 - 35,532
===================================================================================================================
4,453,754 1,118,826 1,336,825
-------------------------------------------------------------------------------------------------------------------
Operating loss (4,453,754) (1,115,743) (1,336,825)
-------------------------------------------------------------------------------------------------------------------
Interest and other income 92,242 4,819 9,285
-------------------------------------------------------------------------------------------------------------------
Net loss (4,361,512) (1,110,924) (1,327,540)
===================================================================================================================
Loss per share (0.08) (0.04) (0.05)
===================================================================================================================
Weighted average number of common
shares outstanding 51,475,610 29,485,777 24,733,815
===================================================================================================================
</TABLE>
See accompanying notes to the financial statements
F-2
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Balance sheet
as at December 31,
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
===================================================================================================================
1999 1998
-------------------------------------------------------------------------------------------------------------------
$ $
(Restated)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 4,187,248 -
Accounts receivable 87,900 23,773
Prepaid expenses and deposits 44,987 -
Inventory 106,471 49,002
-------------------------------------------------------------------------------------------------------------------
4,426,606 72,775
Capital assets (Note 5) 762,895 210,396
-------------------------------------------------------------------------------------------------------------------
5,189,501 283,171
===================================================================================================================
Liabilities
Current liabilities
Bank indebtedness - 44,547
Accounts payable and accrued liabilities (Note 6) 451,049 418,889
Western diversification loan (Note 7) 77,964 77,964
Current portion of capital lease obligation (Note 8) 3,264 7,391
-------------------------------------------------------------------------------------------------------------------
532,277 548,791
Dispute settlement (Note 13) - 33,542
Capital lease obligation (Note 8) - 3,264
-------------------------------------------------------------------------------------------------------------------
532,277 585,597
-------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 12 and 14)
Shareholders' equity (deficiency)
Share capital (Note 9)
Preference shares 246,357 246,357
Common shares 17,730,301 7,111,639
Deferred share-based compensation (1,297,500) -
Deficit (12,021,934) (7,660,422)
-------------------------------------------------------------------------------------------------------------------
4,657,224 (302,426)
-------------------------------------------------------------------------------------------------------------------
5,189,501 283,171
===================================================================================================================
</TABLE>
Continuing operations (Note 1)
See accompanying notes to the financial statements
F-3
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Statement of shareholders' equity
years ended December 31,
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Common Shares Preference Shares Deferred
------------- ----------------- share-based
========================================================================================================================
Number Amount Number Amount compensation
(Restated)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 20,219,136 4,753,702 514 432,176 -
Issued for cash on private placement 7,500,000 2,022,118 - - -
Issued on conversion of
preference shares 516,641 185,819 (221) (185,819) -
Net loss - - - - -
Balance at December 31, 1997 28,235,777 6,961,639 293 246,357 -
Issued on conversion of
convertible debenture 5,000,000 150,000 - - -
------------------------------------------------------------------------------------------------------------------------
Net loss - - - - -
Balance at December 31, 1998 33,235,777 7,111,639 293 246,357 -
Issued on conversion of
convertible debentures, net of
issue cost of $140,575 10,500,000 2,409,425 - - -
Issued on exercise of share
options 3,857,600 1,117,530 - - -
Issued on exercise of warrants 11,846,144 4,825,207 - - -
Shares issued as penalty on
conversion of debenture 500,000 - - - -
Deferred share-based compensation 1,521,248 2,266,500 - - (2,266,500)
Amortization of deferred
share-based compensation - - - - 969,000
Net loss - - - - -
========================================================================================================================
Balance at December 31, 1999 61,460,769 17,730,301 293 246,357 (1,297,500)
========================================================================================================================
<CAPTION>
Total
Shareholders'
=====================================================================================
Deficit Equity
(Restated) (Restated)
<S> <C> <C>
Balance at December 31, 1996 (5,221,958) (36,080)
Issued for cash on private placement - 2,022,118
Issued on conversion of
preference shares - -
Net loss (1,327,540) (1,327,540)
Balance at December 31, 1997 (6,549,498) 658,498
Issued on conversion of
convertible debenture - 150,000
--------------------------------------------------------------------------------------
Net loss (1,110,924) (1,110,924)
Balance at December 31, 1998 (7,660,422) (302,426)
Issued on conversion of
convertible debentures, net of
issue cost of $140,575 - 2,409,425
Issued on exercise of share
options - 1,117,530
Issued on exercise of warrants - 4,825,207
Shares issued as penalty on
conversion of debenture - -
Deferred share-based compensation - -
Amortization of deferred
share-based compensation - 969,000
Net loss (4,361,512) (4,361,512)
=====================================================================================
Balance at December 31, 1999 (12,021,934) 4,657,224
=====================================================================================
</TABLE>
See Note 9 for details of shareholders' equity.
See accompanying notes to the financial statements
F-4
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Statement of cash flows
years ended December 31,
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
=======================================================================================================================
1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------
$ $ $
(Restated)
<S> <C> <C> <C>
Operating activities
Operations
Net loss (4,361,512) (1,110,924) (1,327,540)
Items not affecting cash
Amortization of deferred share-based
compensation 969,000 - -
Amortization of capital assets 129,921 34,843 44,942
Write-down of inventory 50,648 - 35,532
Write-down of capital assets 115,546 - -
Changes in operating assets and liabilities
Accounts receivable (64,127) 44,645 (42,445)
Accounts payable and accrued liabilities 32,160 307,911 66,218
Inventory (108,117) 9,612 108,520
Investment tax credits receivable - 56,797 51,352
Prepaid expenses and deposits (44,987) 374 2,949
Dispute settlement (33,542) 33,542 -
-----------------------------------------------------------------------------------------------------------------------
(3,315,010) (623,200) (1,060,472)
Financing activities
Capital lease obligation repayments (7,391) (9,159) (24,641)
Issue of common shares 5,942,737 - 2,022,118
Issue of convertible debentures, net of issue
costs 2,409,425 150,000 -
Subscriptions received - - (494,917)
-----------------------------------------------------------------------------------------------------------------------
8,344,771 140,841 1,502,560
Investing activities
Purchase of capital assets (797,966) (17,009) (110,472)
Proceeds on sale of capital asset - - 35,519
-----------------------------------------------------------------------------------------------------------------------
(797,966) (17,009) (74,953)
-----------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalent 4,231,795 (499,368) 367,135
Cash position, beginning of year (44,547) 454,821 87,686
-----------------------------------------------------------------------------------------------------------------------
Cash position, end of year 4,187,248 (44,547) 454,821
=======================================================================================================================
Cash position comprises:
Cash and cash equivalents 4,187,248 - 454,821
Bank indebtedness - (44,547) -
-----------------------------------------------------------------------------------------------------------------------
4,187,248 (44,547) 454,821
=======================================================================================================================
Supplemental cash flow disclosure:
Interest Paid 13,411 6,682 -
=======================================================================================================================
Supplemental non-cash financing disclosures:
Issue of common shares on conversion of
debentures 2,409,425 150,000 -
Issue of common shares as compensation 2,266,500 - -
=======================================================================================================================
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
1. Continuing operations
Isee3D, Inc. (formerly International Telepresence (Canada) Inc.) (the
"Company") was incorporated in British Columbia in 1981, under the
Business Corporations Act.
On January 1, 1999, the Company changed its principal business activity
from the development, research and marketing of a single lens/single
camera stereoscopic system for use in medicine, to the development,
research and marketing of a three dimensional stereoscopic streaming
video to be distributed over the Internet and via other local media
formats. In addition, during the year ended December 31, 1999, the
Company changed its name from International Telepresence (Canada) Inc.
to Isee3D, Inc.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company incurred a net loss of $4,361,512 for the year ended December
31, 1999 (1998 - $1,110,924; 1997 - $1,327,540). These factors, among
others, indicate that the Company may be unable to continue as a going
concern for a reasonable period. The success of the Company's future
operations and its continuation as a going concern is dependent upon
attaining profitable operations, and upon its ability to raise
additional financing to continue product development and marketing.
2. Accounting policies
(a) Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles 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 financial statements, and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates are used for, but not limited to, accounting for doubtful
accounts, depreciation, taxes and contingencies. Actual results could
differ from these estimates.
(b) Foreign currency translation
The functional currency of the Company is Canadian dollars. Assets
and liabilities denominated in currencies other than the Canadian
dollar are translated using the exchange rates prevailing at the
balance sheet date. Revenues and expenses are translated using
average exchange rates prevailing during the period. Gains and losses
on foreign currency translations are recorded in the statement of
operations.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term investments
with original maturities of three months or less and bank
indebtedness used to finance operations.
F-6
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
2. Accounting policies (continued)
(d) Inventory
Inventory consists of raw materials and is recorded at the lower of
cost or net realizable value. Cost is determined on a first in, first
out basis.
(e) Capital assets
Capital assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
Research and development and production
equipment 20% declining balance
Computer equipment 30% declining balance
Leasehold improvements straight-line
or term of lease
Software 100% declining balance
Trademarks straight-line over 5 years
Patents straight-line over 5 years
The Company evaluates the recoverability of its capital assets
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. During 1999, the
Company recorded $115,546 as impairment of capital assets ($nil in
1998 and 1997).
(f) Research and development costs
Research and development costs are expensed as incurred unless they
meet generally accepted accounting criteria for deferral and
amortization. The Company reassesses whether it has met the criteria
for deferral and amortization at each reporting date. To date, no
development costs have been deferred.
(g) Income taxes
Future income taxes relate to the expected future tax consequences of
differences between the carrying amount of balance sheet items and
their corresponding tax values. Future tax assets, if any, are
recognized only to the extent that, in the opinion of management, it
is more likely than not that the future income tax assets will be
realized. Future income tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment
or substantive enactment.
(h) Share-based compensation plans
The Company has established a share-based compensation plan, which is
described in Note 8(c). No compensation expense is recognized for
these plans when shares or share options are issued to employees or
directors. Any consideration paid by employees or directors on
exercise of share options or purchase of shares is credited to share
capital.
F-7
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
3. Change in accounting policy
The Company has elected early adoption of the new recommendations of the
Canadian Institute of Chartered Accountants concerning accounting for
income taxes (Note 2(g)). Previously, the Company recorded deferred
income taxes based on timing differences in the recognition of income
and expenses for tax and financial reporting purposes. This new
accounting policy, which was adopted as of January 1, 1999, was applied
retroactively. The retroactive application of this new policy had no
effect on the previously reported financial position or results of
operations
4. Restatement
Subsequent to the issuance of the Company's 1999 financial statements,
the Company determined that certain costs amounting to $368,668 relating
to the issuance of warrants should be expensed in the year instead of
being netted against the proceeds received on exercise of the warrants.
The Company also determined that the net book value of patents and
trademarks acquired prior to 1999 in the amount of $115,546 should be
written off as having a diminished value as a result of the change in
direction of the Company. Those patents and trademarks acquired since
January 1, 1999 will be amortized over five years on a straight line
basis. The financial statements for the year ended December 31, 1999
have been restated to reflect their adjustments.
5. Capital assets
<TABLE>
<CAPTION>
1999 1998
---- ----
Accumulated Net Book Net Book
Cost Amortization Value Value
---- ------------ ----- -----
$ $ $ $
<S> <C> <C> <C> <C>
Research and development
and production equipment 458,407 123,711 334,696 65,234
Computer equipment 438,407 131,137 307,270 29,616
Leasehold improvements 76,059 14,779 61,280 -
Software 63,193 48,966 14,227 -
Trademarks 23,373 2,337 21,036 27,297
Patents 27,095 2,709 24,386 88,249
-------------------------------------------------------------------------------------------------------
1,086,534 323,639 762,895 210,396
=======================================================================================================
</TABLE>
F-8
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
--------------------------------------------------------------------------
6. Accounts payable and accrued liabilities
The principal components of accounts payable and accrued liabilities
were as follows:
1999 1998
---- ----
$ $
Accounts payable 296,099 158,004
Other accrued liabilities 121,408 96,585
Current portion of dispute settlement 33,542 57,500
Shareholder loans - 106,800
==========================================================================
451,049 418,889
7. Western economic diversification loan
1999 1998
---- ----
$ $
Repayable in semi-annual instalments on
September 30 and March 31. Payment in the
form of a royalty of 3% of sales in excess
of $100,000 for the prior six months ending
June 30 and December 31. First instalment
due on September 30, 1993, subject to sales
achieved. Any unpaid balance due and payable
on June 30, 1999 accruing interest from June
30, 1999 at the Bank of
--------------------------------------------------------------------------
Canada prime rate plus 3% 77,964 77,964
8. Capital lease obligations
Future minimum lease payments under capital lease obligations are:
$
Total minimum lease payment 3,658
Less: amount representing interest at 25.8% 394
==========================================================================
Balance of capital lease obligation 3,264
Less: current portion of capital lease obligation 3,264
--------------------------------------------------------------------------
-
Capital assets include equipment under capital leases with a cost of
$24,160 (1998 - $24,160) and accumulated amortization of $19,967 (1998 -
$18,170).
================================================================================
F-9
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
--------------------------------------------------------------------------
9. Share capital
(a) Authorized share capital
Unlimited Common shares, voting, without par value
Unlimited Preference shares, non-voting, convertible, redeemable,
cumulative, issuable in series
(b) Changes in common shares
On March 10, 1999, the Company issued two unsecured convertible
debentures for $300,000 and $450,000, respectively. Each debenture
was convertible into 3,000,000 and 4,500,000 common shares
respectively, at a price of $0.10 per share (the market closing price
per common share on the trading day prior to the announcement of the
private placements) and 3,000,000 and 4,500,000 common share purchase
warrants, respectively. Each common share purchase warrant entitles
the holder to purchase one additional common share of the Company at
a price of $0.15 for a period of up to 18 months. The debentures were
converted into common shares and share purchase warrants on May 1,
1999.
On June 3, 1999, the Company completed a private placement for total
proceeds of $1,800,000 through the issuance of 3,000,000 units at
$0.60 per unit (the market closing price per common share on the
trading day prior to the announcement of the private placement). Each
unit under the private placement consisted of one common share and
one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one additional common share of the
Company at a price of $0.70 for a period of 18 months from the date
of issue.
During 1999, the Company entered into three consulting agreements
whereby the Company received consulting services in exchange for a
combination of cash and common shares of the Company. A total of
1,521,248 common shares were issued during the year in exchange for
these consulting services. These transactions were recorded at the
fair value of the consideration given up by the Company and resulted
in share-based compensation. Where applicable, the resulting
share-based compensation is being deferred and amortized over the
terms of the respective consulting agreements.
On October 29, 1999, the Company issued 500,000 common shares in
payment of a penalty relating to the failure of the Company to obtain
a final receipt for a prospectus in connection with financing
completed in October of 1998.
================================================================================
F-10
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
--------------------------------------------------------------------------
9. Share capital (continued)
(c) Share-based compensation plans
The Company has established a Share Option Plan (the "option plan")
which provides for options to purchase common shares to be granted by
the Company to directors, officers, employees and consultants of the
Company and affiliated companies. The aggregate number of common
shares reserved for issue at any time cannot exceed 10% of the number
of issued and outstanding common shares of the Company. At the date
options are granted, the exercise price for an option shall not be
less than the then market price of the common shares of the Company.
Options granted are subject to certain vesting requirements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Commons Exercise Common Exercise Common Exercise
----------------------------------------------------------------------------------------------------------------------------
Options Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of year 2,610,000 0.36 3,035,000 0.36 2,800,000 0.74
Granted 10,552,500 1.53 - - 2,025,000 0.37
Exercised (3,857,600) 0.29 - - - -
----------------------------------------------------------------------------------------------------------------------------
Cancelled (1,525,000) 0.36 (425,000) 0.36 (1,790,000) 0.96
Outstanding
at end of
year 7,779,900 1.98 2,610,000 0.36 3,035,000 0.36
Exercisable at
----------------------------------------------------------------------------------------------------------------------------
end of year 7,779,900 1.98 2,610,000 0.36 3,035,000 0.36
<CAPTION>
The following table summarized information about share options outstanding and
exercisable at December 31, 1999:
----------------------------------------------------------------------------------------------------------------------------
Number Weighted Weighted Number
Range of Outstanding Average Average Exercisable
Exercise at December 31, Remaining Exercise at December 31,
Prices 1999 Contractual Life Price 1999
$ $
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.03 - 1.00 2,629,900 4.09 years 0.45 2,629,900
----------------------------------------------------------------------------------------------------------------------------
1.01 - 2.00 2,900,000 1.71 years 1.45 2,900,000
----------------------------------------------------------------------------------------------------------------------------
2.01 - 3.00 600,000 1.71 years 2.95 600,000
----------------------------------------------------------------------------------------------------------------------------
3.01 - 4.00 550,000 2.68 years 4.00 550,000
----------------------------------------------------------------------------------------------------------------------------
4.01 - 5.00 550,000 3.68 years 5.00 550,000
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.01 - 6.00 550,000 4.68 years 6.00 550,000
----------------------------------------------------------------------------------------------------------------------------
7,779,900 7,779,900
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
10. Share capital (continued)
(d) Share purchase warrants
During 1999, 11,796,144 previously issued common share purchase
warrants were exercised for cash proceeds of $4,817,707 and 1,750,400
common share purchase warrants expired. In addition, 50,000 common
share purchase warrants issued pursuant to the conversion of the
convertible debentures were exercised for gross cash proceeds of
$7,500.
The number, exercise prices and expiry dates of common share purchase
warrants outstanding at December 31, 1999 were as follows:
Number of Exercise Expiry
shares price date
----------- -------------- --------------
7,450,000 $0.15 November 1, 2000
3,000,000 0.70 December 4, 2000
----------
10,450,000
(e) Escrow shares
Issued share capital includes 1,080,000 common shares held in escrow
to be released in 2000.
(f)Series A 9% preference shares
The Series A 9% Preference Shares are entitled to a cumulative cash
dividend of 9% per annum, payable in semi-annual instalments on
January 1 and July 1 (see Note 12). The Series A Preference Shares
are convertible at face value into common shares at a rate that
approximates the Company's common share trading price immediately
prior to the conversion, less a 15%, 10% or 5% discount if conversion
occurs within 1 year, 2 years or 3 years of issue, respectively. The
series a 9% preference shares are redeemable by the Company at face
value, plus a 15%, 10% or 5% premium if redemption occurs within 1
year, 2 years or 3 years of issue, respectively.
See the Statement of shareholders' equity for details of share
transactions.
F-13
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
11. Income taxes
The reported income tax recovery differs from the amount computed by
applying the Canadian basic statutory rate to the net loss before income
taxes. The reasons for this difference and the related tax effect are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
$ $ $
<S> <C> <C> <C>
Canadian basic statutory tax rate 46.7% 45.6% 45.6%
Expected income tax recovery 2,039,628 504,804 605,624
Unrecognized tax losses 1,923,735 (491,701) (559,408)
Temporary differences not recognized
during the year (113,209) (14,999) (46,216)
Permanent differences (2,684) (104) -
- - -
</TABLE>
The Company has accumulated losses of approximately $11,000,000 for
income tax purposes, which may be deducted in the calculation of taxable
income in future years. The losses expire on various dates to 2006.
Future income taxes result primarily from temporary differences in the
recognition of certain revenue and expense items for financial and
income tax reporting purposes. Significant components of the Company's
future tax assets and liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
$ $
<S> <C> <C>
Future income tax assets
Net operating tax losses carried forward 4,862,353 3,155,484
Book and tax base differences on assets 245,239 185,095
----------------------------------------------------------------------------------------------------------
Valuation allowance for future income tax assets (5,107,592) (3,340,579)
Net future income tax assets - -
Future income tax liabilities - -
==========================================================================================================
Future income tax assets, net - -
==========================================================================================================
</TABLE>
F-14
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
========================================================================
10. Income taxes (continued)
Due to the uncertainty surrounding the realization of income tax assets
in future years, the Company has a 100% valuation allowance against its
future income tax assets. The net change in the total valuation
allowance for the year ended December 31, 1999 and 1998 was a provision
of $1,767,013 and $846,310 respectively.
In addition to the accumulated losses for income tax purposes, the
Company has incurred scientific research and experimental development
expenditures ("SR&ED") of $453,000 for income tax purposes which may be
carried forward indefinitely and deducted in the calculation of taxable
income in future years.
The Company has accumulated non-refundable investment tax credits of
$56,000 which may be applied against taxes payable in future years, and
which expire at various dates through 2005.
The potential tax benefit which may result from future application of
the losses, non-refundable credits, SR&ED expenditures and capital cost
allowance is not reflected in these financial statements.
11. Related party transactions and balances
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
$ $ $
<S> <C> <C> <C>
Salaries paid to directors and ex-directors - 23,958 84,052
Consulting fees paid to directors 269,217 141,000 165,000
Legal fees paid to firms of which directors
are partners 58,668 27,060 73,971
======================================================================================================
327,885 192,018 323,023
</TABLE>
During 1999, the Company issued the following share options to a Company
controlled by an officer of Isee3D, Inc.:
Number of Exercise Expiry
shares price date
--------- -------- ------
300,000 $0.74 April 1, 2002
300,000 $1.71 July 1, 2002
-------
600,000
=======
During the year, 300,000 of these options were exercised at $0.74 for
gross proceeds of $222,000.
Related party transactions are in the normal course of operations and
are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
========================================================================
F-15
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
12. Commitments
The Company leases facilities under operating leases. Future minimum
operating lease payments for the years ending December 31 pursuant to
leases outstanding at December 31, 1999 are as follows:
$
2000 156,670
2001 123,899
2002 124,442
2003 127,160
2004 31,790
563,961
The Preference Shares described in Note 9(f) carry a 9% cumulative
dividend. As at December 31, 1999, the Preference Shares carried
undeclared dividends in arrears of $105,827.
At December 31, 1999, the Company had a letter of guarantee outstanding,
totalling $75,000, in favour of SITQ Inc.
13. Dispute settlement
During 1998, the Company settled a lawsuit for $115,000 which was to be
paid over two years. The amount is included in accounts payable and
accrued liabilities and dispute settlement. The amount paid during 1999
was $57,500.
14. Contingencies
A legal action by a shareholder against the Company and its directors
and transfer agent is pending in the British Columbia Supreme Court. In
that action, the shareholder alleges that the conduct of the Company and
its current directors was oppressive to the shareholder and seeks relief
including as injunction to restrain a Special Meeting of Shareholders
held April 29, 1999, an Order to release a restriction placed on certain
shares held by the shareholder, unspecified damages, interest and costs.
The shareholder's application to restrain the Special Meeting was
dismissed but counsel for the shareholder has advised of their intention
to seek leave to appeal this decision.
The Company has been named as a defendant pursuant to litigation arising
from certain contracts and employee terminations. The amount claimed has
not been defined and the Company is defending the actions, believing
they are without merit. Any settlement arising from these actions will
be charged to operations in the year paid.
================================================================================
F-16
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
--------------------------------------------------------------------------
15. Segmented information
The Company considers its business to consist of one operating segment.
All of the Company's assets and operations are located in Canada.
16. Financial instruments and risk management
(a) Fair value
The carrying value of cash and cash equivalents, accounts receivable,
deposits, bank indebtedness, accounts payable and accrued
liabilities, capital lease obligations, Western Diversification loan
and the dispute settlement, as reflected in the balance sheets,
approximates their respective fair values as at December 31, 1999 and
1998 because of the demand or short-term maturity of these
instruments.
(b) Credit risk
The Company is subject to credit risk. At December 31, 1999, 100%
(1998 - 77%) of the accounts receivable were due from one debtor. Bad
debt experience has not been significant.
(c) Foreign exchange risk
The Company undertakes expenditures in United States dollars and as
such is subject to risk due to fluctuations in exchange rates. The
Company does not use derivative instruments to reduce its exposure to
foreign exchange risk.
17. Uncertainty due to the year 2000 issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems, which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the Year 2000 Issue that may affect the Company, including those related
to customers or other third parties, have been fully resolved.
================================================================================
F-17
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
------------------------------------------------------------------------
18. United States generally accepted accounting principles
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP")
which, in the case of these financial statements, conforms in all
material respects with those in the United States ("U.S. GAAP") except
as follows:
(a) Development Stage Company
The financial statements as at December 31, 1999 and for the year
then ended represent the cumulative financial position, results
of operations, change in shareholders` equity and cash flows from
the date the Company changed its principal business activity. The
Company has incurred operating losses of $4,361,512 from the date
of change of its principal business activity to December 31,
1999. The successful completion of the Company's product
development program and, ultimately, achieving profitable
operations is dependent upon future events including maintaining
adequate capital to finance its future development activities and
achieving a level of revenues adequate to support the Company's
cost structure.
(b) Net loss
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
-----------------------------------------------------------------------------------------------------
$ $ $
<S> <C> <C> <C>
Net loss under Canadian GAAP (4,361,512) (1,110,924) (1,327,540)
Consulting expense (e) (1,880,667) - -
Share-based compensation (f) (799,201) (118,800) (345,600)
--------------------------------------------------------------------------------------------
Net loss under U.S. GAAP (7,041,380) (1,229,724) (1,673,140)
============================================================================================
Basic and diluted loss per share
under U.S. GAAP (d) (0.14) (0.05) (0.08)
============================================================================================
Weighted average number of
common shares outstanding
under U.S. GAAP 49,585,612 26,604,246 20,773,816
============================================================================================
</TABLE>
F-18
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
18. United States generally accepted accounting principles (continued)
(c) Shareholders' equity
<TABLE>
<CAPTION>
1999 1998
---- ----
$ $
<S> <C> <C>
Canadian GAAP 4,657,224 (302,426)
Adjustment to operating expense with respect
to consulting expense (e) (1,880,667) -
Adjustment to operating expense with respect
to share-based compensation (f) (1,263,601) (464,400)
Adjustment to retained earnings with respect
to consulting expense (e) 1,880,667 -
Adjustment to retained earnings with respect
to share-based compensation (f) 1,263,601 464,400
---------------------------------------------------------------------------------------
US GAAP 4,657,224 (302,426)
=======================================================================================
</TABLE>
(d) Earnings per Share
Under U.S. GAAP, earnings per share is determined in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings per Share". The provisions of SFAS 128 did not have any
impact on the Company, as under both U.S. and Canadian GAAP, the
weighted average shares outstanding is used for the purpose of
calculating the basic loss per share. Furthermore, the potential
effect of all outstanding convertible preference shares, warrants
and options is anti-dilutive.
Under U.S. GAAP, escrow shares are not included in the number of
shares outstanding used in the calculation of earnings per share,
whereas they are included for Canadian GAAP.
(e) Accounting for Share-based Compensation
In accordance with the provisions of SFAS No. 123, "Accounting
for Stock-based Compensation", the Company applies APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based awards to
employees, and accordingly does not recognize compensation
expense unless shares are issued in excess of fair value. The
Company has adopted the disclosure only provisions of SFAS No.
123. Compensation costs related to stock-based awards to
non-employees are recognized under U.S. GAAP as share based
compensation rateably over the term of service. During the year
ended December 31, 1999, the Company issued options to
individuals other than employees and directors, which under SFAS
123 resulted in consulting expenses of $1,880,667 (1998 - $Nil;
1997 - $Nil).
F-19
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
19. United States generally accepted accounting principles (continued)
(f)Escrow shares
Under U.S. GAAP, shares issued pursuant to an escrow agreement
are presumed to be compensatory in nature. Compensation is
provided in accordance with FIN28 "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans", whereby the Company records compensation expenses for the
amount of equity instruments granted to officers and employers.
During the year ended December 31, 1999, 1,080,001 common shares
(1998 - 1,080,001; 1997 - 1,080,001) were released from escrow.
Share-based compensation expenses of $799,201 (1998 - $118,800;
1997 - $345,600) have been recorded under US GAAP based on the
fair value of the common shares on the date of release.
(g) Product development costs
Under U.S. GAAP, costs incurred in the development of products
are expensed as incurred until the product is established as
technologically feasible in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed". Under Canadian GAAP, these costs
may be capitalized to the extent that they meet specified
criteria for recoverability. For all years presented, there is no
difference relating to the treatment of product development costs
under Canadian and U.S. GAAP.
(h) Warrants
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Outstanding at beginning of year 13,439,844 12,880,900 2,800,900
Granted 10,450,000 2,058,944 10,000,000
Exercised 11,796,144 - -
Expired and cancelled 1,643,700 1,500,000 -
Outstanding at end of year 10,450,000 13,439,844 12,880,900
Exercisable at end of year 10,450,000 13,439,844 12,880,900
</TABLE>
During 1999, the Company granted 10,450,000 warrants (2,058,944
in 1998). In connection with the issue of common shares and
convertible debentures. Under US GAAP, the intrinsic value of a
warrant issued in connection with a convertible debenture is
expensed as interest expense if the warrant bears a beneficial
conversion feature. For all years presented, there is no expense
recorded relating to the issuance of warrants in connection with
convertible debentures, as all warrants were issued at an
exercise price above the market price at the date of issue.
F-20
<PAGE>
ISEE3D, INC.
(formerly International Telepresence (Canada) Inc.)
Notes to the financial statements
year ended December 31, 1999
(expressed in Canadian dollars)
================================================================================
20. United States generally accepted accounting principles (continued)
(i)Other Accounting Pronouncements
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued the Statement of Position ("SOP")
98-1, "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use". This statement requires
capitalization of certain costs of computer software developed or
obtained for internal use. The adoption of this statement had no
effect on the Company's consolidated financial position or
results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-up Activities". Under this statement, the cost of
start-up activities should be expensed as incurred. The adoption
of this statement had no effect on the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and
hedging activities. This statement requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Company will adopt this statement as currently
required in its financial statements for the fiscal year 2001,
which the Company expects will not have a material effect on its
financial position or results of operations.
F-21
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada)
Inc.)
Balance Sheet
Unaudited
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 3,907,802 236,179
Accounts receivable 54,305 25,835
Prepaid expenses and deposits 74,313 8,022
Inventory 219,160 49,005
4,255,580 319,041
Capital assets 1,043,775 243,435
5,299,355 562,476
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 232,666 457,729
Western Diversification loan 77,964 77,964
Current portion of capital lease obligation 2,111 4,940
------- -------
312,741 540,633
Capital lease obligation 0 3,371
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
312,741 544,004
STOCKHOLDERS' EQUITY (CAPITAL
DEFICIENCY)
Share capital (Note 8)
Preference shares 246,357 246,357
Common shares 18,474,633 7,736,637
Deferred share-based compensation (1,038,000) 0
Deficit (12,696,376) (7,964,522)
4,986,614 18,472
5,299,355 562,476
</TABLE>
F-23
<PAGE>
Isee3D, Inc.
(formerly International Telepresence
(Canada) Inc.)
Statement of Operations
Unaudited
(Expressed in Canadian Dollars)
For the three
months ended
March 31,
2000 1999
SALES 8,232 0
COST OF SALES 6,214 0
2,018 0
EXPENSES
General and administrative 1,116,526 269,572
Research and development 17,967 21,389
Amortization of capital assets 55,945 7,110
Interest 5,700 6,029
1,196,138 304,100
OPERATING LOSS (1,194,120) (304,100) 0
INTEREST AND OTHER INCOME 37,377 0
NET LOSS (1,156,743) (304,100) 0
LOSS PER SHARE (0) (0)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 56,009,672 34,235,777
See Accompanying Notes to the Financial Statements.
F-24
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Statement of Cash Flows
Unaudited
(Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
For the
three
months ended March 31,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Operations
Net loss (1,156,743) (304,100)
Items not affecting cash
Amortization of deferred share-based compensation 259,500 0
Amortization of capital assets 55,945 7,110
Changes in operating assets and liabilities
Accounts receivable 33,595 (2,062)
Accounts payable and accrued liabilities (218,383) 19,672
Inventory (112,689) 0
Prepaid expenses and deposits (29,326) (8,022)
Dispute settlement (14,374)
(1,168,101) (301,776)
FINANCING ACTIVITIES
Capital lease obligation repayments (1,153) (2,349)
Issue of common shares, net of issue costs 1,113,000 625,000
1,111,847 622,651
INVESTING ACTIVITIES
Purchase of capital assets (223,195) (40,149)
Proceeds on sale of capital asset 0 0
(223,195) (40,149)
NET CHANGE IN CASH AND CASH EQUIVALENT (279,449) 280,7260
</TABLE>
F-25
<PAGE>
<TABLE>
<S> <C> <C>
CASH POSITION, BEGINNING OF PERIOD 4,187,248 (44,547)
CASH POSITION, END OF PERIOD 3,907,799 236,179
CASH POSITION IS DEFINED AS
Cash and cash equivalents 3,907,799 0
Bank indebtedness 0 (44,547)
3,907,799 (44,547)
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Interest Paid 4,964 6,682
</TABLE>
F-26
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
1. GENERAL
Isee3D, Inc. (formerly International Telepresence (Canada) Inc.) (the
"Company") was incorporated in 1981 under the British Columbia Business
Corporations Act.
On January 1, 1999, the Company changed its principal business activity
from the development, research and marketing of a single lens/single
camera stereoscopic system for use in medicine, to the development,
research and marketing of a three dimensional stereoscopic streaming
video to be distributed over the Internet and via other local media
formats. In addition, during the year ended December 31, 1999, the
Company changed its name from International Telepresence (Canada) Inc.
to Isee3D, Inc.
These interim financial statements are unaudited and may therefore not
be representative of a full year's operations. These interim statements
reflect all adjustments which, in the opinion of management, are
necessary to a fair statement of the results for the interim period
presented.
2. ACCOUNTING POLICIES
(a) Use of estimates
The preparation of 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 financial
statement, and the reported amounts of revenues and expenses
during the reporting period. Significant estimates are used
for, but not limited to, accounting for doubtful accounts,
depreciation, taxes and contingencies. Actual results could
differ from these estimates.
(b) Foreign currency translation
The functional currency of the Company is Canadian dollars.
Assets and liabilities denominated in other than the Canadian
dollar are translated using the exchange rates prevailing at
the balance sheet date. Revenues and expenses are translated
using average exchange rates prevailing during the period.
Gains and losses on foreign currency translations are recorded
in the statement of operations.
F-27
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
2. ACCOUNTING POLICIES (Continued)
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term
investments with original maturities of three months or less
and bank indebtedness used to finance operations.
(d) Inventory
Inventory consists of raw materials and is recorded at the
lower of cost or net realizable value. Cost is determined on a
first in, first out basis.
(e) Capital assets
Capital assets are carried at cost less accumulated
amortization. Amortization is calculated annually as follows:
<TABLE>
<CAPTION>
<S> <C>
Research and development and production equipment 20% declining balance
Computer equipment 30% declining balance
Leasehold improvements straight-line or term of lease
Software 100% declining balance
Trademarks straight-line over 40 years
Patents straight-line over 17 years
</TABLE>
The Company evaluates the recoverability of its capital assets
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. No
impairment in capital assets has been identified by the
Company.
(f) Research and development costs
Research and development costs are expensed as incurred unless
they meet generally accepted accounting criteria for deferral
and amortization. The Company reassesses whether it has met
the criteria for deferral and amortization at each reporting
date. To date, no development costs have been deferred.
(g) Income taxes
Future income taxes relate to the expected future tax
consequences of differences between the carrying amount of
balance sheet items and their corresponding tax values. Future
tax assets, if any, are recognized only to the extent that, in
the opinion of management, it is more likely than not that the
future income tax assets will be realized. Future income tax
F-28
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment or substantive
enactment.
F-29
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
2. ACCOUNTING POLICIES (Continued)
(h) Stock based compensation plans
The Company has established a stock-based compensation plan,
which is described in Note 8(c). No compensation expense is
recognized for these plans when stock or stock options are
issued to employees or directors. Any consideration paid by
employees or directors on exercise of stock options or
purchase of stock is credited to share capital.
3. CHANGE IN ACCOUNTING POLICY
The Company has elected early adoption of the new recommendations of he
Canadian Institute of Chartered Accountants concerning the accounting
for income taxes (Note 2(g)). Previously, the Company recorded deferred
income taxes based on timing differences in the recognition of income
and expenses for tax and financial reporting purposes. This new
accounting policy which was adopted as of January 1, 1999, was applied
retroactively. The retroactive application of this new policy had no
effect on the previously reported financial position or results of
operations
F-30
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
4. SHARE CAPITAL
(a) Authorized share capital
Unlimited Common shares, voting, without par value
Unlimited Preference shares, non-voting, convertible,
redeemable, cumulative, issuable in series
(b) Changes in common shares
On March 10, 1999, the Company issued two unsecured
convertible debentures for $300,000 and $450,000,
respectively. Each debenture was convertible into 3,000,000
and 4,500,000 common shares respectively, at a price of $0.10
per share (the market closing price per common share on the
trading day prior to the announcement of the private
placements) and 3,000,000 and 4,500,000 common share purchase
warrants, respectively. Each common share purchase warrant
entitles the holder to purchase one additional common share of
the Company at a price of $0.15 for a period of up to 18
months. The debentures were converted into common shares and
share purchase warrants on May 1, 1999.
On June 3, 1999, the Company completed a private placement for
total proceeds of $1,800,000 through the issuance of 3,000,000
units at $0.60 per unit (the market closing price per common
share on the trading day prior to the announcement of the
private placement). Each unit under the private placement
consisted of one common share and one common share purchase
warrant. Each common share purchase warrant entitles the
holder to purchase one additional common share of the Company
at a price of $0.70 for a period of 18 months from the date of
issue.
During 1999, the Company entered into three consulting
agreements whereby the Company received consulting services in
exchange for a combination of cash and common shares of the
Company. A total of 1,521,248 common shares were issued during
the year in exchange for these consulting services. These
transactions were recorded at the fair value of the
consideration given up by the Company and resulted in
share-based compensation. Where applicable, the resulting
share-based compensation is being deferred and amortized over
the terms of the respective consulting agreements.
On October 29, 1999, the Company issued 500,000 common shares
in payment of a penalty relating to the failure of the Company
to obtain a final receipt for a prospectus in connection with
financing completed in October of 1998.
F-31
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
During the period to March 31, 2000 the Company issued
2,900,000 common shares pursuant to the conversion of warrants
and 310,000 common shares pursuant to the conversion of
options. 29,341 common shares were issued for consulting
services.
F-32
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
(c) Stock-based compensation plans
The Company has established a Share Option Plan (the "option
plan") which provides for options to purchase common shares to
be granted by the Company to directors, officers, employees
and consultants of the company and affiliated companies. The
aggregate number of common shares reserved for issue at any
time cannot exceed 10% of the number of issued and outstanding
common shares of the Company. At the date options are granted,
the exercise price for an option shall not be less than the
then market price of the common shares of the Company. Options
granted are subject to certain vesting requirements.
The following table summarized information about stock
options outstanding and exercisable at March 31, 2000:
<TABLE>
<CAPTION>
March
31,
2000 1999 1998
Weighted Weighted
Average Average Average
Common Exercise Common Exercise Common Exercise
Options Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 7,779,900 1.98 2,610,000 0.36 3,035,000 0.36
Granted 4,080,000 1.87 10,552,500 1.53 - -
Exercised (310,000) 0.49 (3,857,600) 0.29 - -
Cancelled (250,000) 1.28 (1,525,000) 0.36 (425,000) 0.36
----------- ------ ----------- ------ ---------- ------
Outstanding at
end of year 11,299,900 2.00 7,779,900 1.98 2,610,000 0.36
Exercisable at
end of year 11,299,900 7,779,900 2,610,000
</TABLE>
F-33
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
(d) Share purchase warrants
The number, exercise prices and expiry dates of common share
purchase warrants outstanding at March 31, 2000 were as
follows:
Number of Exercise Expiry
shares price date
-------------- ------------- ----------------
5,500,000 $0.15 November 1, 2000
2,100,000 0.70 December 4, 2000
--------------
7,600,000
==============
During 1999, the Company entered into an agreement whereby the
Company agreed to pay 8% of the gross proceeds of any common
share purchase warrants exercised in exchange for investor
related services. During the year ended December 31, 1999,
$368,668 was paid as a result of this agreement. These costs
have been treated as share issue costs and, accordingly, have
been netted against the gross proceeds received from the
conversion of the related common share purchase warrants.
(e) Series A 9% preference shares
The Series A 9% Preference Shares are entitled to a cumulative
cash dividend of 9% per annum, payable in semi-annual
instalments on January 1 and July 1. The Series A Preference
Shares are convertible at face value into common shares at a
rate that approximates the Company's common share trading
price immediately prior to the conversion, less a 15%, 10% or
5% discount if conversion occurs within 1 year, 2 years or 3
years of issue respectively. The series a 9% preference shares
are redeemable by the Company at face value, plus a 15%, 10%
or 5% premium if redemption occurs within 1 year, 2 years or 3
years of issue respectively.
F-34
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
5. INCOME TAXES
The reported income tax recovery differs from the amount computed by
applying the Canadian basic statutory rate to the net loss before
income taxes. The reasons for this difference and the related tax
effect are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Canadian basic statutory tax rate 45.6% 45.6% 45.6%
Expected income tax recovery $ 1,769,697 $ 508,804 $ 605,624
Unrecognized tax losses (1,706,869) (491,701) (559,408)
Temporary differences not recognized during the year (60,144) (14,999) (46,216)
Permanent differences (2,684) (104) -
---------------------------------------------------------------------------------------------
$ - $ - $ -
=============================================================================================
</TABLE>
The Company has accumulated losses of $10,651,381 for income tax
purposes which may be deducted in the calculation of taxable income in
future years. The losses expire on varying dates to 2006.
Future income taxes result primarily from temporary differences in the
recognition of certain revenue and expense items for financial and
income tax reporting purposes. Significant components of the Company's
future tax assets and liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Future income taxe assets
Net operating tax loss carry forwards $ 4,862,353 $ 3,155,484
Book and tax base differences on assets 245,239 185,095
Valuation allowance for future income tax assets (5,107,592) (3,340,579)
---------------------------------------------------------------------------------
Net future income tax assets - -
Future income tax liabilities - -
---------------------------------------------------------------------------------
Future income tax assets, net - -
=================================================================================
</TABLE>
Due to the uncertainty surrounding realization of the future income tax
assets in future income tax liabilities, the Company has a 100%
valuation allowance against its future income tax assets. The net
change in the total valuation allowance for the year ended December 31,
1999 and 1998 was a provision of $1,767,013 and $846,310 respectively.
In addition to the accumulated losses for income tax purposes, the
company has incurred scientific research and experimental development
expenditures ("SR&ED") of $453,000 for income tax purposes which may be
carried forward indefinitely and deducted in the calculation of taxable
income in future years.
F-35
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
5. INCOME TAXES (Continued)
The Company has accumulated non-refund investment tax credits of
$56,000 which may be applied against taxes payable in future years, and
which expire at various dates through 2005.
The potential tax benefit which may result from future application of
the losses, non-refundable credits, SR&ED expenditures and capital cost
allowance is not reflected in these financial statements.
6. CONTINGENCIES
A legal action by a shareholder against the Company and its directors
and transfer agent is pending in the British Columbia Supreme Court. In
that action, the shareholder alleges that the conduct of the Company
and its current directors was oppressive to the shareholder and seeks
relief including as injunction to restrain a Special Meeting of
Shareholders held April 29, 1999, an Order to release a restriction
placed on certain shares held by the shareholder, unspecified damages,
interest and costs. The shareholder's application to restrain the
Special Meeting was dismissed but counsel for the shareholder has
advised of their intention to seek leave to appeal this decision.
The Company has been named as a defendant pursuant to litigation
arising from certain contracts and employee terminations. The amount
claimed has not been defined and the Company is defending the actions,
believing they rate without merit. Any settlement arising from these
actions will be charged to operations in the year paid.
7. SEGMENTED INFORMATION
The Company considers its business to consist of one operating segment.
All of the Company's assets and operations are located in Canada
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems, which use certain dates in
1999 to represent something other
F-36
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
than a date. Although the change in date has occurred, it is not
possible to conclude that all aspects of the Year 2000 Issue that may
affect the Company, including those related to customers or other third
parties, have been fully resolved.
F-37
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP") which, in the case of these financial statements,
conforms in all material respects with those in the United States
("U.S. GAAP") except as follows:
(a) Net loss
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
2000 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss under Canadian GAAP $ (1,156,743) $ (3,879,214) $(1,110,924) $ (1,327,540)
Share-based compensation $ 2,186,996 $ 799,201 $ 118,800 $ 345,600
Consulting expense $ 501,146 $ 1,880,667 $ - $ -
--------------- -------------- ------------ ---------------
Net loss under US GAAP. $ (3,844,885) $ (6,559,081) $(1,229,724) $ (1,673,140)
Basic and diluted loss per share
under U.S. GAAP $ (0.07) $ (0.13) $ (0.05) $ (0.08)
Weighted average number of common shares
outstanding under U.S. GAAP 54,389,675 49,585,612 26,604,246 20,773,816
</TABLE>
(b) Revenue recognition
For all periods presented, there is no difference relating to
revenue recognized under Canadian and US GAAP.
(c) Earnings per Share
Under U.S. GAAP, earnings per share is determined in
accordance with Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings per Share". The provisions of SFAS
128 did not have any impact on the Company, as under both U.S.
and Canadian GAAP, the weighted average shares outstanding is
used for the purpose of calculating the basic loss per share.
Furthermore, the potential effect of all outstanding
convertible preference shares, warrants and options is
anti-dilutive.
Under U.S. GAAP, escrow shares are not included in the number
of shares outstanding used in the calculation of earnings per
share, whereas they are included for Canadian GAAP.
F-38
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued)
(d) Accounting for Stock-based Compensation
In accordance with the provisions of SFAS No. 123, "Accounting
for Stock-based Compensation", the Company applies APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based awards to
employees, and accordingly does not generally recognize
compensation expense. The Company has adopted the disclosure
only provisions of SFAS No. 123. Compensation costs related to
stock-based awards to non-employees are recognized under U.S.
GAAP as share based compensation rateably over the term of
service. During the year ended December 31, 1999, the Company
issued options to individuals other than employees and
directors which under SFAS 123 resulted in consulting expense
of $1,880,667 (1998 - $Nil; 1997 - $Nil).
For the period ended March 31, 2000 the consulting expense was
$501,146.
Under SFAS No. 123, employee stock options granted and share
purchase warrants issued under the Employee Share Purchase
Plan are valued at the issuance date using the Black-Scholes
valuation model and the resultant compensation cost is
recognized rateably over the vesting period. Had compensation
cost for these items been determined based on the
Black-Scholes value at the issuance dates for awards as
prescribed by SFAS No. 123, pro forma net loss and net loss
per share would have been as follows:
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
2000 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss
As reported under US GAAP $ (3,844,885) $ (6,559,081) $(1,229,724) $ (1,673,140)
SFAS No. 123 pro forma $ 1,127,100 $ 2,903,375 $ - $ 95,600
---------------- ------------- ------------- -------------
$ (4,971,985) $ (9,462,456) $(1,229,724) $ (1,768,740)
Basic and diluted earnings per share
As reported under US GAAP $ (0.07) $ (0.13) $ (0.05) $ (0.08)
SFAS No. 123 pro forma $ (0.02) $ (0.06) $ - $ -
---------------- ------------- ------------- -------------
(0.09) (0.19) (0.05) (0.08)
---------------- ------------- ------------- -------------
</TABLE>
F-39
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
The weighted average Black-Scholes option pricing model value
of options granted under the share option plan during the
years ended December 31, 1999, 1998 and 1997 were $0.56, $Nil,
and $0.05, per share respectively. The fair value for those
options was estimated at the date of grant using the following
weighted average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Assumption
Volatility factor of expected
market price of
the Company's shares 176% n/a 14%
Dividend yield 0% n/a 0%
Weighted average expected life
of stock
options (years) 1 year n/a 2.2 years
Risk free interest rate 6.42% n/a 5.25%
</TABLE>
For the period ended March 31, 2000 a volatility factor of
180% was used, with a 0% dividend yield, a weighted average
life of the stock options of 3 years and a risk free interest
rate of 6.0%.
(e) Escrow shares
Under U.S. GAAP, shares issued pursuant to an escrow agreement
are presumed to be compensatory in nature. Compensation is
provided in accordance with FIN28 "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans", whereby the Company records compensation expense for
the amount of equity instruments granted to officers and
employers. During the period ended March 31, 2000, 1,619,997
common shares (1999-1,080,001; 1998 - 1,080,001; 1997 -
1,080,001) were released from escrow. Share-based compensation
expense of $2,186,996 (1999-$799,201; 1998 - $118,800; 1997 -
$345,600) has been recorded under US GAAP based on the fair
value of the common shares on the date of release.
F-40
<PAGE>
Isee3D, Inc.
(formerly International Telepresence (Canada) Inc.)
Notes to the Financial Statements
(Expressed in Canadian Dollars)
March 31, 2000
Unaudited
--------------------------------------------------------------------------------
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued)
(f) Product development costs
Under U.S. GAAP, costs incurred in the development of products
are expensed as incurred until the product is established as
technologically feasible in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise
Marketed". Under Canadian GAAP, these costs may be
capitalized to the extent that they meet specified criteria
for recoverability. For all years presented, there is no
difference relating to the treatment of product development
costs under Canadian and U.S. GAAP
(g) Other Accounting Pronouncements
In March 1998, the AICPA issued SOP 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal
Use". This statement requires capitalization of certain costs
of computer software developed or obtained for internal use.
The adoption of this statement had no effect on the Company's
consolidated financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-up Activities". Under this statement, the cost
of start-up activities should be expensed as incurred. The
adoption of this statement had no effect on the Company's
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. The Company will adopt this
statement as currently required in its financial statements
for the fiscal year 2001, which the Company expects will not
have a material effect on its financial position or results of
operations.
F-41
