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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 000-23785
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT
-------------
Annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 000-23785
LASERMEDIA COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in Its Charter)
ONTARIO, CANADA
(Jurisdiction of Incorporation or Organization)
11 CHARLOTTE STREET, TORONTO, ONTARIO, M5V 2H5
(Address of Principal Executive Office)
COPY TO:
JOHN H. HEUBERGER, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4000
(312) 236-7516 (TELECOPIER)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report:
13,018,291 OUTSTANDING COMMON SHARES
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
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Section Page
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EXCHANGE RATES OF THE CANADIAN DOLLAR ................................ 1
Item 1. BUSINESS ................................................... 2
Item 2. DESCRIPTION OF PROPERTY .................................... 23
Item 3. LEGAL PROCEEDINGS .......................................... 24
Item 4. CONTROL OF REGISTRANT ...................................... 25
Item 5. NATURE OF TRADING MARKET ................................... 26
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS ........................................... 27
Item 7. TAXATION ................................................... 28
Item 8. SELECTED FINANCIAL DATA .................................... 31
Item 9. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
OPERATING RESULTS FOR LASERMEDIA ........................... 34
Item 10. DIRECTORS AND EXECUTIVE OFFICERS ........................... 39
Item 11. EXECUTIVE COMPENSATION ..................................... 41
Item 12. OPTIONS TO PURCHASE SECURITIES ............................. 42
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS ............. 45
Item 14. NOT REQUIRED ............................................... 47
Item 15. DEFAULTS UPON SENIOR SECURITIES ............................ 48
Item 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR 49
REGISTERED SECURITIES AND USE OF PROCEEDS ..................
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TABLE OF CONTENTS (CONT'D)
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Section Page
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Item 17. NOT REQUIRED ............................................. 50
Item 18. FINANCIAL STATEMENTS ..................................... F-1
Item 19(a). FINANCIAL STATEMENTS ..................................... 47
Item 19(b). EXHIBITS ................................................. 47
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This report on Form 20-F, including Item 1 ("Business") and Item 18
("Financial Statements"), contains forward looking statements regarding future
events or the future financial condition of Lasermedia Communications Corp. and
its subsidiaries (the "Company") that involve certain risks and uncertainties
discussed under "Risk Factors" below at pages 16-23. Actual events or the
actual future results of the Company may differ materially from any forward
looking statement due to such risks and uncertainties.
EXCHANGE RATES OF THE CANADIAN DOLLAR
-------------------------------------
Financial information in this registration statement is expressed in
Canadian dollars, unless otherwise noted. References to "CDN$" or "$" are to
Canadian dollars. The following table sets forth, for the periods indicated,
the high and low exchange rates, the average of the month-end exchange rates
and the period-end exchange rate of the Canadian dollar in exchange for the
United States dollars, based upon the inverse of exchange rates reported by the
Federal Reserve Bank of New York at the noon buying rates in New York City for
cable transfers payable in the Canadian dollars as certified for customs
purposes. On May 29, 1998 the noon buying rate was CDN$1.00 = U.S.$0.6863
<TABLE>
<CAPTION>
Fiscal Year Ended Average High Low Close
----------------- ------- ---- --- -----
<S> <C> <C> <C> <C>
12/31/97 $0.7223 0.7424 0.6991 0.6991
12/31/96 $0.7334 0.7557 0.7209 0.7297
12/31/95 $0.7285 0.7533 0.7009 0.7331
12/31/94 $0.7321 0.7591 0.7198 0.7198
12/31/93 $0.7751 0.8046 0.7439 0.7544
12/31/92 $0.8272 0.8757 0.7661 0.7865
</TABLE>
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ITEM 1. BUSINESS
THE COMPANY
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The Company, through its wholly owned subsidiaries, produces and
distributes multimedia interactive consumer software products in the
entertainment, home education and personal fitness categories. Its initial
products are CD-ROM computer programs for fitness training with a companion
Internet web site for instruction, program tracking and fitness trainer
feedback.
The Company was incorporated under the Corporations Act (Ontario, Canada)
on April 20, 1964 under the name Benvan Mines Limited. Its original business
was mineral exploration. On July 10, 1975 its name was changed to Howie
Controls (Canada) Limited. Under this name, the Company became involved in the
photographic film processing business. The name of the Company was changed on
December 9, 1982 to Benvan Holdings, Inc., and on December 27, 1991 to Osgoode
Holdings Inc. As both Benvan Holdings, Inc. and Osgoode Holdings Inc., the
Company operated as a holding company, although it did not carry on any active
business.
Also on June 27, 1997, the name of the Company was changed to Lasermedia
Communications Corp.; its stated capital was reduced; 818,981 common shares
were issued in settlement of outstanding debts in the amount of CDN$204,745.29;
a previously existing stock option plan was repealed and a new incentive stock
option plan for directors, officers, employees, advisors, and consultants of
the Company was adopted; and the Company was authorized to exceed certain
thresholds of the Rules of The Toronto Stock Exchange relating to share
compensation arrangements.
On June 27, 1997, the Company acquired all the issued and outstanding
securities of Lasermedia Inc. ("Lasermedia"). Lasermedia's principal business
is the production and distribution of multimedia interactive consumer software
products in the entertainment, home education and personal fitness categories.
In acquiring Lasermedia, the Company issued the following securities:
11,033,487 common shares, 600,000 Series A common share purchase warrants,
200,000 Series B common share purchase warrants, 200,000 Series C common share
purchase warrants, 100,000 Series D common share purchase warrants, 2,866,666
Series E common share purchase warrants and 258,000 Series F common share
purchase warrants. The
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securities issued by the Company in exchange for the issued and outstanding
securities of Lasermedia were valued at CDN $8,300,000. The value of Lasermedia
was determined by an unaffiliated business valuation and litigation support
company. At the time of the acquisition, the President of Lasermedia, Erik
Schannen, owned 32.7% of Lasermedia's common shares. Mr. Schannen is currently
the President and a Director of the Company. Mr. Schannen had no business
affiliation with the Company prior to the acquisition of Lasermedia. Mr.
Schannen co-founded Lasermedia in August 1994.
The Company has one other wholly owned subsidiary, Verisim, Inc.
("Verisim"), a software company which develops Internet software.
The headquarters and registered office of the Company is located at 11
Charlotte Street, Toronto, Ontario M5V 2H5. Its telephone number is (416)
977-2001. Inquiries should be directed to Brian Gibson, the Company's Chief
Operating Officer.
The registrar and co-transfer agent for the Company is Equity Transfer
Services Inc., 120 Adelaide Street West, Suite 420, Toronto, Ontario M5H 4C3,
Tel: (416) 361-0152. The other co-transfer agent is Continental Stock Transfer
& Trust Company, 2 Broadway, New York, NY 10004; Tel: (212) 509-4000.
THE MARKET
- ----------
The multimedia market originated in the early 1990's as products were
developed which combined graphics, sound and motion video for personal
computers. Computer manufacturers recognized the impact multimedia would have
on their business and developed hardware (faster CPU's, sound cards, speakers,
etc.) to accommodate this new communications medium. Currently, almost all
personal computers shipped have multimedia capabilities.
Management believes that CD-ROM technology is becoming the standard media
for presentation and delivery of information on computer programs, and is
generating significant market opportunities in both existing and new
applications. Management also believes that the Company is well placed to
exploit the current technology and new developments like DVD (Digital Versatile
Disc). DVDs have seven times the storage capacity of the current generation
of CD-ROMs, but no higher cost.
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Lasermedia's "Active" line of products are targeted to adults between the
ages of 30 and 55. Management believes that middle-aged adults seek products
and services which will help them to remain youthful and improve quality of
life at work and at home. Management also believes that middle-aged adults
will be attracted to entertainment software programs that are challenging,
stimulating and that appear to be a 'good investment,' as an alternative to
action packed, reflex oriented games designed for 13-20 year olds.
PRODUCTS
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Current Products
The Active Library of Products
------------------------------
Lasermedia's library currently consists of three titles, Active
Trainer(TM), Active Abs(TM), and Active Body BLAST(TM) which are in the
personal fitness category. Active Trainer(TM) entered the market in July
1995, and Active Abs(TM) followed in May 1997. Active Blast(TM) was
released to the market in December 1997.
Active Trainer(TM). Active Trainer(TM) is promoted as a personal
trainer in a box. The user works one-on-one with Mr. USA, Shane Minor,
and fitness expert, Liz West, to design a fitness program suited to the
user by selecting and programming from among the exercises offered on the
CD-ROM. A balance of aerobic, weight training, stretching, and
nutritional guidelines are accessible as part of the program. The user
applies the program to set goals, record progress, and observe the
exercises. It is not necessary for the user to run the program while he
or she exercises. Active Trainer(TM) also provides user oriented pep
talks and directions. The suggested retail price of Active Trainer(TM) is
US$49.95.
The Active Trainer(TM) software is built using MacroMedia Director, a
multimedia application development framework. All Active Trainer(TM) data
structures, objects and methods are written in Lingo. The system is
compatible with Macintosh, Windows 3.1, and Windows 95. Active
Trainer(TM) features the following ten (10) modules:
- Shared: This module contains basic computer code and data structures.
- Introduction: Active Trainer(TM) introduces the user to the people
and philosophy behind the fitness program using video clips and
animation.
- Gym: The gym is comprised of two screens: the Check-In and the Gym.
At the Check-In, the user signs in. The Gym is the main menu,
where the user chooses which areas to visit.
- Fitness Test: The test is comprised of a series of screens designed
to evaluate the
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user's health history, current physical fitness and fitness goals.
A fitness program and weekly schedule is prepared based on this
information.
- Stretching Area: The Stretching Area introduces the user to the
concepts of warming up and cooling down, and exhibits stretching
exercises.
- Weight Room: This area presents the user with a strength training
routine. This routine can be modified by the user. A video based
explanation of each exercise is complemented by muscle anatomy and
motivational information.
- Aerobics Studio: This area presents a comparative list of
cardiovascular exercises, and a guide to target heart rate, and
allows the user to design an aerobic exercise program.
- Cafeteria: The cafeteria presents the user with a sample meal plan.
General nutrition information includes an overview of food groups,
the food pyramid, and vitamins. This section offers recipes for
healthy desserts.
- Glossary: The glossary contains a list of concepts used in Active
Trainer((TM)), with a brief definition, and cross references from
throughout the program.
- Map: The map gives the user an overview of the structure of the
Active Trainer((TM)) screens.
Active Abs((TM)). Active Abs((TM)) is similar to Active
Trainer((TM)) in objectives, but with an added emphasis on abdominal
training. The suggested retail price of Active Abs((TM)) is US$19.95.
The Active Abs((TM)) software is built using MacroMedia Director, a
multimedia application development framework. All Active Abs((TM))
data structures, objects and methods are written in Lingo. The system is
compatible with Macintosh, Windows 3.1, and Windows 95. Active Abs((TM))
features the following five (5) modules:
- Shared: This module is very similar to Active Trainer((TM)), as the
two programs share most of their object structures.
- Main: This is the main menu, similar to Active Trainer((TM))'s Gym.
- Test: This is a shortened version of Active Trainer((TM))'s Fitness
Test.
- Learn: Learn is an informative quiz debunking the myths of abdominal
training.
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Services Agreement dated February 2, 1997. Under the Consulting Services
Agreement, Mr. Chaisson has assisted in the final development of Active
Abs(TM) and has
- Build: Build is the heart of Active Abs(TM). A different abdominal
workout is designated for the user each day. Alternatively, the user
can design a custom workout by assembling a sequence of clips from a
list of about 35 exercises.
Active Body BLAST(TM). Active Body BLAST(TM) combines Active Abs(TM)
with a new program titled Active Legs & Buns(TM). Active Legs & Buns(TM)
is targeted towards a predominantly female audience, emphasizing
equipment-free lower body exercises. The suggested retail price of Active
Body BLAST(TM) is US$49.95.
The Active Legs & Buns(TM) software is built using MacroMedia
Director, a multimedia application development framework. All Active Legs
& Buns(TM) data structures, objects and methods are written in Lingo. The
system is compatible with Macintosh, Windows 3.1, and Windows 95. Active
Legs & Buns(TM) features the following modules:
- Shared: This module is very similar to Active Trainer(TM), as the two
programs share most of their object structures.
- Main: This is the main menu, similar to Active Trainer's(TM) Gym.
- Test: This is a shortened version of Active Trainer's(TM) Fitness
Test.
- Learn: Learn is an informative quiz debunking the myths of lower body
training.
- Build: Build is the heart of Active Legs & Buns(TM). A different
lower body workout is designated for the user each day.
Alternatively, the user can design a custom workout by assembling a
sequence of clips from a list of about 35 exercises.
Hardware Requirements. A 486/66 or Pentium processor computer is
required to operate the Company's programs in Windows along with a double
speed CD-ROM, 4 megabytes of free RAM, 3 to 18 megabytes disk space, a
sound card and local bus/PCI video, 68040 or PowerPC Macintosh with double
speed CD-ROM, 4.5 megabytes of free RAM and 3 to 18 megabytes disk space.
Stereo speakers and a printer are recommended.
Active Trainer(TM), Active Abs(TM), and Active Body BLAST(TM)
Development and Licensing. The fitness content of the Active Trainer(TM)
software program was written by Kevin Chaisson, an independent consultant
of the Company. Mr. Chaisson also assisted in the final development and
assists in developing upgrades for Active Body BLAST(TM). Mr. Chaisson
continues to be engaged by the Company as a consultant pursuant to a
Consulting Services Agreement dated February 2, 1997. Under the Consulting
Services Agreement, Mr. Chaisson has assisted in the final development of
Active Abs(TM) and has
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agreed to assist in developing upgrades of Active Trainer(TM) and Active
Abs(TM). The Company pays Mr. Chaisson a royalty ranging from 1.5% to
2.5% of gross revenue from the sale of Active Trainer(TM) and ranging from
1% to 3% of gross revenue from the sale of Active Abs(TM). The Company
issued 7,000 shares of common stock to Mr. Chaisson and granted Mr.
Chaisson an option to purchase an additional 5,000 shares of common stock
upon the combination of the Company and Lasermedia Either the Company or
Mr. Chaisson can terminate the service obligations under the Consulting
Services Agreement (but not the royalties) on 30 days notice.
On June 27, 1997, Softech, an unaffiliated limited partnership
("Softech L.P."), purchased from Lasermedia, all of Lasermedia's ownership
rights to the Active Trainer(TM) family of software including the
interactive technologies developed by Lasermedia embodied therein and
subsequent modifications and improvements. The purchase price was
CDN$1,950,000. Concurrently, Softech L.P. engaged Lasermedia to
manufacture on behalf of, and purchase from, Softech L.P. products derived
from that software for resale, and Softech L.P. appointed Lasermedia as
the exclusive reseller of the Active Trainer(TM) line of software and all
related products and services for a period of ten years. Lasermedia has
the option to renew for one further consecutive period of five years.
Lasermedia has the right to use the Active Trainer(TM) line of software
for its own internal research and development and to prepare derivative
works and products. In exchange for these rights, Lasermedia pays to
Softech L.P. a royalty equal to 70% of the gross receipts from the sale of
Active products minus certain costs such as the cost of purchasing Active
products from Softech L.P., costs of goods sold (e.g. shipping, duties and
taxes, packaging, manufacturing), general administrative costs (e.g.
insurance, copyrights and patents, defense of copyrights and patents,
translations), advertising and marketing costs, and up to CDN$50,000 in
employment costs. After Softech L.P. has been paid CDN$1,950,000, Softech
L.P.'s royalty rate declines to 30%. As of March 23, 1998, Lasermedia has
paid CDN$250,000 to Softech L.P. Lasermedia is obligated to purchase a
minimum of CDN$62,500 worth of Active product units for each fiscal
quarter in 1998. Lasermedia has not yet achieved sales in excess of the
minimum guarantee. The units are subject to declining prices ranging from
CDN$8.00 per unit for the first 100,000 units to CDN$3.25 per unit after
750,000 units have been purchased. Softech L.P. is free to license to
third parties the technology, which Lasermedia believes can be useful in
developing other interactive computer products. Lasermedia entered into
the sale and license-back transaction with Softech L.P. to accelerate
realization of value of technology developed by the Lasermedia, which,
because of technological advances, could have limited long-term
proprietary value. The Company plans to engage in sale and license-back
transactions with other new software technology it develops. None of the
products currently under development by the Company use the technology
sold to Softech, L.P. Proceeds from the sale of software technology will
be used to defray operating expenses and to support research and
development. Approximately $1 million of the CDN$1,950,000 received by
Lasermedia from the sale of the Active Trainer(TM) family of
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software was allocated to research and development.
In connection with the sale and leaseback transaction, Lasermedia
issued to Softech L.P. a Series E Warrant to purchase 2,751,666 shares of
Lasermedia's common stock at an exercise price of CDN$0.75 per share.
The Series E Warrant is scheduled to expire, unless sooner exercised, in
March 2002. Softech L.P. distributed the Series E Warrant to its
partners.
In May, 1998, the Company agreed to grant TRC Fitness Inc. the
Canadian distribution rights of the Company's Active(TM) line of
products. TRC Fitness is one of Canada's largest fitness suppliers with
exclusive distribution or licensing rights of prominent retail and
commercial brands including: Stairmaster(R), Reebok(R), Cybex(R), Body
Break(R), The Step(R), and The Original Ab-Trainer(R). TRC Fitness
services both the Canadian and International markets with distribution
capabilities in fitness clubs, department stores and sporting goods
stores. The agreement with TRC Fitness will give LaserMedia the
opportunity to develop interactive fitness products exclusively for TRC
Fitness' Body Break(R) and Reebok(R) license. TRC Fitness will have the
exclusive rights under this agreement to market these brands
internationally. The Company believes that its agreement with TRC
Fitness will assist the Company in fulfilling its goal of establishing a
strong presence in the health & fitness retail markets.
ActiveTrainer.com
-----------------
The Company has an Internet web site, ActiveTrainer.com, at
http://www.activetrainer.com. The web site provides bulletin board
service (BBS) for interacting with the Company's personal trainers. On
its web site, the Company publishes weekly articles on fitness and
nutrition. ActiveTrainer.com provides a shopping site for fitness
software, equipment and vitamin supplements. The Company's web site also
presents information about the Company and its future products.
Ancillary Multimedia Services
-----------------------------
Lasermedia offers multimedia services to corporate clients. These
services include the development of customized multimedia software,
animation, and design and Internet web site development. These services
are complementary to Lasermedia's core software and production
activities. Lasermedia's ancillary multimedia services have included the
following specially manufactured titles:
Architectura, a CD-ROM magazine for AutoDesk Press, entailed
development of a quarterly magazine which provided the users of
AUTOCAD (engineering and
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architectural software) with news, tips on using CAD software, and
video interviews with industry leaders. The first issue was
included in all AutoDesk products and Trade Shows, with an estimated
first run of 50,000 units.
RxPlus, a floppy disk multimedia presentation that was distributed
in the June 1996 issue of Human Resources Professional magazine to
explain the impact of Ontario's Bill C26 (the Omnibus Bill) on the
future cost of prescription drugs.
Product Development
Financing of Product Development
--------------------------------
Active Trainer(TM) was financed through shareholder loans and
operating cash flow. Both Active Abs(TM) and Active Legs & Buns(TM) were
financed through the Company's cash flow from operations and proceeds from
the sale of the Active Trainer(TM) family of software to Softech L.P.
Product Acquisition
-------------------
The Company routinely evaluates companies and products for
acquisition. Of primary concern are those companies and software rights
which can advance existing Company projects. Recently, the Company
purchased rights to certain application computer software known as "Beat
2000 CD-ROM Software Product", which Lasermedia currently markets as
"Maestro(TM)." Maestro(TM) is fully optimized for MMX(TM) technology, and
can import and create tracks for playback on PC, Mac, Unix and the Web.
Sound effects, a programmable virtual drum machine, volume and stereo
panning can all be laid down on 20 tracks with no time limits. Users can
create sounds for jazz, classical and rock music. This CD-ROM product
comes with a library of sound and premixed song files and also features
effects such as normalizing, panning, echo, timing and pitch control.
Individual tracks and songs can be displayed in seconds or by frames.
By a consulting agreement dated September 24, 1997, the Company
retains the consulting services of Aludra Software Inc. in connection
with the development of computer software products. Aludra Software Inc.
holds options to purchase 20,000 shares.
Research and Development
------------------------
The following products are being developed by Verisim, a wholly
owned subsidiary of the Company. As of March 31, 1998, revenue had not
yet been generated by Verisim with respect to the products it is
developing.
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Active VR Management believes that this virtual realty product will
create its own market niche among home exercise equipment owners. Active
VR will enable the user to train and compete on exercise bikes and
treadmills through virtual reality courses and follow a comprehensive
training plan in the process. Users will select a course for themselves
or go online to compete head to head with others via the Internet.
Active VR will be available in three versions: the Professional
version, the Consumer version, and the Athletic version. The
Professional version will allow the user at a gym to navigate through a
3D environment, selecting a course and music with which to exercise. The
Consumer version is substantially similar to the Professional version,
except that users will be able to use this program in their homes. The
Athletic version has the same attributes as the Professional version plus
the added feature of an equipment interface and the ability to race
others over the internet.
Currently Active VR is in the development phase. Although Active VR
was originally scheduled for release during the second quarter of 1998,
the Company has decided to further develop certain attributes of this
virtual reality product and anticipates releasing Active VR before the
end of 1998.
Project Epic Management believes that the most popular games are
those that involve real life opponents and allies, plots and strategies.
Verisim is developing a game engine to serve as the foundation for a
series of Internet based games. These games will be based on organic
territories that shift and grow with the players. Users will be able to
play with or against hundreds of other participants over the Internet.
Revenue is expected to be generated from subscriptions, advertising
placements, sponsorships, and licensing of the technology.
The first game to be released from Project Epic is Genome, which is
built around the idea of teraforming or colonization of a planet. Genome
is scheduled to be released during the third quarter of 1998.
Project Tracker This tracking and calendar software micro manages
the user's fitness and nutrition goals. It includes scheduling of fitness
activities, recording of results, tracking food intake with a complete
nutrition database, and charting progress. Tracker will work as a stand
alone product, in conjunction with the Active Trainer(TM) products, or on
the Internet.
Project Tracker is scheduled to be released on July 4, 1998.
Project Virtual Health Club The company LaserMedia intends to build
upon its multimedia production enterprise to create a comprehensive
on-line health and fitness service. By relying on its core competency in
the personal fitness market, the company intends to create and operate an
"on-line service" to provide uniquely personalized and
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customized: fitness and training programs; medical and health
information; diet and nutrition programs; direct access to related
interactive multimedia functionality; athletic accessories; as well as a
broad range of related goods and services such as travel and leisure
services; community resources; and professional wellness and lifestyle
services.
Currently, Project Virtual Health Club is in the development phase.
It is anticipated that the Virtual Health Club will be "on-line" by the
end of 1998.
Project Green This golf teaching tool brings the expertise of a golf
pro to the user. Like Active Trainer(TM) and its list of exercises and
demos, Project Green features a list of video clips describing the aspects
of a golf game. The program also includes a golf game analysis on any
course the user builds, and a series of golf drills that the user goes
through to help improve his or her game.
Project Green is currently on hold as the Company is looking at
deploying resources to its Virtual Health Club initiative.
Project Pacific Going beyond physical fitness and sports to the
realm of mind/body wellness, Project Pacific is a stress management
CD-ROM. This program is expected to give users the tools they need to
gain control of the everyday causes of stress. Topics covered include
goal setting, time management, handling disagreements, and achieving
goals. A stress test is planned to analyze the user's level of stress
and its sources, and to suggest areas of the program the user should
study first.
Project Pacific is currently on hold as the Company is looking at
deploying resources to its Virtual Health Club initiative.
MANUFACTURING
- -------------
Lasermedia's products are manufactured by unaffiliated third parties,
including Media Duplication Corp., Goldrich Printpak Inc., Legg Bros., Graphics
Limited, Accu-Measure Inc., American & Efird Canada Inc., 960180 Ontario Inc.
c.o.b. as Rite Printing and Brown Packaging. Lasermedia is not dependent upon a
single supplier or manufacturer of products.
DISTRIBUTION
- ------------
Active Trainer(TM) was initially offered and sold through mail order
software catalogues and magazines. Since its introduction in July 1995 through
December 31, 1997, approximately 20,000 copies have been sold. Lasermedia
intends to continue to offer Active Trainer(TM) and other Active products
through mail order software catalogues.
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Lasermedia has embarked on an aggressive effort to develop a comprehensive
distribution network for its products. No single customer or group of
customers represents in excess of 10% of the Company's revenues. Lasermedia's
customers include Best Buy, CompUSA, Chapters, American TV, Computer City,
Hastings, Data Vision, Egg Head, Fry's, J&R Computer World, Micro Center, Tiger
Direct, Media Play, Nationwide, R C S Computer Experience, T Zone and
Electronic Boutique. Lasermedia has distribution contracts with Micro Central,
Merisel Americas, Inc., Computer City, Micro Center and Simitar Entertainment
Inc.
In May, 1998, the Company agreed to grant TRC Fitness Inc. the
Canadian distribution rights of the Company's Active(TM) line of products. TRC
Fitness is one of Canada's largest fitness suppliers with exclusive
distribution or licensing rights of prominent retail and commercial brands
including: Stairmaster(R), Reebok(R), Cybex(R), Body Break(R), The Step(R), and
The Original Ab-Trainer(R). TRC Fitness services both the Canadian and
International markets with distribution capabilities in fitness clubs,
department stores and sporting goods stores. The agreement with TRC Fitness
will give LaserMedia the opportunity to develop interactive fitness products
exclusively for TRC Fitness' Body Break(R) and Reebok(R) license. TRC Fitness
will have the exclusive rights under this agreement to market these brands
internationally. The Company believes that its agreement with TRC Fitness will
assist the Company in fulfilling its goal of establishing a strong presence in
the health & fitness retail markets.
ADVERTISING AND PROMOTION
- -------------------------
In connection with the Company's advertising and promotion, CDN$50,000 per
month has been allocated for each product line to best ensure product
awareness. This amount will vary from time to time to compensate the launch of
new products and up-grades.
Web Site
The Company gains exposure for its web addresses
(http://www.lasermedia.com and http://activetrainer.com) by prominently
displaying its web addresses on all new packaging, T-shirts, mailouts and
printed promotional material. In addition the Company continues to research
the most effective methods of drawing hits using the on-line search engines.
These search engines employ various criteria strategies including key works,
categories, phrases, daemons and Internet addresses to aid web users to locate
specific information.
The Company intends to continue to use its web site to market Active
Trainer(TM), collect customer profiles, develop awareness of the Company, and
build a stable of advertisers for its commercial Internet site. The Company
intends to add new products to the site as they are developed, with "Coming
Soon" type promotions announcing upcoming products. The Company also intends
to promote its products through selected Internet news groups. These news
groups
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<PAGE> 16
enable people to go to a common Internet site to obtain the latest
information on a subject of particular interest. The Company intends to
encourage employees to join news groups to allow for "signature files"
(information that automatically appears with e-mail) which would include an
on-line catch phrase about the Company's products and where to get more
information.
Magazines and Catalogues
Magazines and catalogues, including Tiger Software (circulation 1.5
million), MacWarehouse and Computer Life, have been selected for their wide
circulation in both Canada and the United States. Lasermedia initially tested
Active Trainer(TM) sales through such magazines and catalogues. The CD-ROM
catalogues provided the least expensive, most efficient medium of communication
to a large, widely dispersed audience. Active Trainer(TM) has consistently been
in the top five sellers for Tiger Software. The Company intends to continue to
selectively place print media advertisements in publications that attract
readers within the Company's target market.
Trade Shows
The Company attended the Retail Vision trade show from March 31, 1998 to
April 4, 1998, and the E3 Electronic Expo held in June of 1998. In addition,
the Company is planning on attending the Sporting Goods Manufacturers
Association (SGMA) trade show in Chicago in July 1998 and the Fall Retail
Vision trade show in San Diego in August 1998.
COMPETITION
- -----------
The interactive consumer software market is characterized by intense
competition and by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's competitors range from small
companies with limited resources to large companies with substantially greater
financial, technical and marketing resources than those of the Company.
Management believes that potential new competitors, including large software
and hardware companies, media companies and film studios, are increasing their
focus on interactive entertainment and the home educational consumer software
market.
Only a small percentage of products introduced in the consumer computer
software market achieve any degree of sustained market acceptance. The
principal competitive factors guiding the success of a particular consumer
computer software product include technological innovation, product features,
ease of use, perceived quality, reliability, brand recognition, marketing
strategy, selling price, access to distribution channels and retail space and
availability to the consumer of technical support for the product. The Company
believes that it competes effectively in these areas.
The Company is aware of the following CD-ROM fitness products:
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<PAGE> 17
Lifeform (Fitnesoft Inc.), which is a health and lifestyle record
keeping tool that does not offer fitness testing or recommendations
for an exercise program. It allows the user to keep a record of
medical history, nutritional intake and exercise habits
and then charts the user's progress. It does not offer any
multimedia content;
Multimedia Workout (Lifestyle Software Group) offers recordkeeping
features and video clips of weight training exercises. It does not
offer the interactive fitness test and the video based personal
training features of Active Trainer(TM);
The Mayo Clinic Sports Health & Fitness (IVI Publishing) provides
the user general guidelines for a fitness regimen, but not a
specific program, based on a video guided fitness test similar to
that in Active Trainer(TM). The program also presents articles on
nutrition, exercise and sports. Video content includes interview
clips from ESPN and demonstrations of some of the exercises; and,
BodyCraft (AlphaSport) presents a generic exercise program and
promoter protein supplement products offered by AlphaSport. This
product has been heavily promoted to "Give you rippling abs in 30
days or don't pay".
The Company's share of the fitness and exercise software market is
approximately 18%, as determined by PC Data.
TRADEMARKS, LOGOS, AND TRADENAMES
- ---------------------------------
The Company relies upon copyright, trade secret and contract law to
protect its proprietary technology in Canada, the United States and in
international markets. Such copyright protection prohibits the reproduction of
exact language and code of the Company's products and software programs but
does not effectively protect the Company against selective reproduction of
certain aspects of any product or program. The Company utilizes
confidentiality and non-competition provisions in its employee and consultant
agreements as well as with various third parties with whom it deals in order to
restrict the use of its proprietary technology. There are no assurances as to
the extent to which such agreements will be enforceable in all instances.
On June 9, 1997 the Company received a letter from Laser Media Inc. of Los
Angeles, California which requested that the Company cease and desist using the
domain name "Lasermedia" on the Internet. The Company offered to change its
domain name. However, Laser Media Inc. chose to institute a compliant
procedure with Network Solutions' Domain Name Dispute Policy ("Network
Solutions"). Network Solutions, under the authority of the Department of
Defense, assigns Internet domain names on a first-come, first-serve basis. If
there
14
<PAGE> 18
is a conflict, Network Solutions can suspend the use of the name. It has
no authority to impose any other legal remedy. The Company has offered a
compromise to share the "Lasermedia" domain name with differentiations and
cross-references. Laser Media, Inc. has declined this solution. The Company
intends to continue to seek an amicable compromise of this matter. The Company
has filed trademark applications in both the U.S. and Canada for "LaserMedia."
On June 27, 1997, Softech, an unaffiliated limited partnership ("Softech
L.P."), purchased from Lasermedia, all of Lasermedia's ownership rights to the
Active Trainer(TM) family of software and subsequent modifications and
improvements. The purchase price was CDN$1,950,000. Concurrently, Softech L.P.
engaged Lasermedia to manufacture on behalf of, and purchase from, Softech L.P.
products derived from that software for resale, and Softech L.P. appointed
Lasermedia as the exclusive reseller of the Active Trainer(TM) line of software
and all related products and services for a period of ten years. Lasermedia has
the option to renew for one further consecutive period of five years. In
addition, Lasermedia has the right to use the Active Trainer(TM) line of
software for its own internal research and development and to prepare derivative
works and products. In exchange for these rights, Lasermedia pays to Softech
L.P. a royalty equal to 70% of the gross receipts from the sale of Active(TM)
products minus certain costs such as the cost of purchasing Active(TM) products
from Softech L.P., costs of goods sold (e.g. shipping, duties and taxes,
packaging, manufacturing), general administrative costs (e.g. insurance,
copyrights and patents, defense of copyrights and patents, translations),
advertising and marketing costs, and up to CDN$50,000 in employment costs.
After Softech L.P. has been paid CDN$1,950,000, Softech L.P.'s royalty rate
declines to 30%. As of March 23, 1998, Lasermedia has paid $250,000 to Softech
L.P. Lasermedia is obligated to purchase a minimum of CDN$62,500 worth of
Active(TM) product units for each fiscal quarter in 1998. Lasermedia has not
yet achieved sales in excess of the minimum guarantee. The units are subject to
declining prices ranging from CDN$8.00 per unit for the first 100,000 units to
CDN$3.25 per unit after 750,000 units have been purchased. Softech L.P. is free
to license to third parties the technology, which Lasermedia believes can be
useful in developing other interactive computer products. Lasermedia entered
into the sale and license-back transaction with Softech L.P. to accelerate
realization of value of technology developed by Lasermedia, which, because of
technological advances, could have limited long-term proprietary value. The
Company plans to engage in a number of sale and license-back transactions with
other new software technology it develops. None of the products currently under
development by the Company use the technology sold to Softech, L.P. Proceeds
from the sale of software technology will be used to defray operating expenses
and to support research and development. Approximately $1 million of the
CDN$1,950,000 received by Lasermedia from the sale of the Active Trainer(TM)
family of software was allocated to research and development.
In connection with the sale and leaseback transaction, Lasermedia issued
to Softech L.P. a Series E Warrant to purchase 2,751,666 shares of Lasermedia's
common stock at an exercise price of CDN$0.75 per share. The Series E Warrant
is scheduled to expire, unless sooner exercised, in March 2002. Softech L.P.
distributed the Series E Warrant to its partners.
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<PAGE> 19
GOVERNMENT REGULATION OF ENVIRONMENT
- ------------------------------------
There are no significant rules or regulations in connection with
governmental regulation of the environment applicable to the Company that would
have a material effect on capital expenditures, earnings or its competitive
position.
EMPLOYEES
- ---------
At May 31, 1998, the Company, including Lasermedia and Verisim
employed 38 employees of which six are in administration, 27 in product
development, one in product support and four in sales and marketing.
SEASONAL VARIATION
- ------------------
The Company has not experienced significant effects of seasonality to
date; however, the operating results of many software companies reflects
seasonal fluctuations. For example, many software companies earn their highest
revenue and profits in the calendar year-end holiday season and a seasonal low
in revenue and profits in the quarter ending in June. There can be no
assurance that the Company will not experience such trends in the future.
RISK FACTORS
- ------------
The following are the principal risk factors regarding an investment in
the Company.
Limited History of Operations and Profitability
The Company has a limited operating history. The Company's prospects must
be
16
<PAGE> 20
considered in light of the risks, expenses, and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in a new and evolving market such as the production of multimedia
software. For the fiscal year ended December 31, 1997, the Company's sales
revenue increased by 54% in comparison to the fiscal year ended December 31,
1996. However, such growth rates may not be sustainable and is not indicative of
future operating results. There can be no assurance that any of the Company's
business strategies will be successful or that the Company's revenue growth
will continue on an annual or quarterly basis.
Reliance on Active Trainer(TM)
Revenue from Active Trainer(TM) accounted for approximately 80% of the
Company's total revenues during fiscal year 1996, and approximately 15% of sales
during fiscal year 1997. If Active Trainer(TM) fails to continue to sell or if
the Company fails to replace the Active Trainer(TM) product with additional
products generating significant revenue, the Company's business, operating
results and financial conditions will be materially and adversely affected.
License with Softech L.P.
On June 27, 1997, Softech L.P., an unaffiliated limited partnership,
purchased from Lasermedia, all of Lasermedia's ownership rights to the Active
Trainer(TM) family of software and subsequent modifications and improvements.
The purchase price was CDN$1,950,000. Concurrently, Softech L.P. engaged
Lasermedia to manufacture on behalf of, and purchase from, Softech L.P. products
derived from that software for resale, and Softech L.P. appointed Lasermedia as
the exclusive reseller of the Active Trainer(TM) line of software and all
related products and services for a period of ten years. Lasermedia has the
option to renew for one further consecutive period of five years. In addition,
Lasermedia has the right to use the Active Trainer(TM) line of software for its
own internal research and development and to prepare derivative works and
products. In exchange for these rights, Lasermedia pays to Softech L.P. a
royalty equal to 70% of the gross receipts from the sale of Active(TM) products
minus certain costs such as the cost of purchasing Active(TM) products from
Softech L.P., costs of goods sold (e.g. shipping, duties and taxes, packaging,
manufacturing), general administrative costs (e.g. insurance, copyrights and
patents, defense of copyrights and patents, translations), advertising and
marketing costs, and up to CDN$50,000 in employment costs. After Softech L.P.
has been paid CDN$1,950,000, Softech L.P.'s royalty rate declines to 30%. As of
March 23, 1998, Lasermedia had paid $250,000 to Softech L.P. In May, 1998,
the Company entered into a letter of intent with TRC Fitness Inc. ("TRC"),
whereby TRC will have the Canadian distribution rights of the Company's
Active(TM) line of products. Nevertheless, the long term success of the Company
depends on the Company developing additional products which generate significant
revenue to dilute the percentage of total revenue absorbed by the license with
Softech L.P. There can be no assurance that the Company will be able to develop
such products.
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<PAGE> 21
Potential Fluctuations in Quarterly Operating Results
The Company expects that its future operating results will fluctuate
significantly as a result of numerous factors, including the demand for the
Company's products, the Company's ability to develop new products, research and
development activities, the timing of new product introductions and product
enhancements by the Company and its competitors, market acceptance of the
Company's new and enhanced products, the emergence of new industry standards,
the timing of customer orders, the mix of products sold, competition, the mix
of distribution channels employed, the evolving and unpredictable nature of the
markets for the Company's products and multimedia software, and general
economic conditions. The Company typically operates with a relatively small
order backlog. As a result, quarterly sales and operating results depend in
part on the volume and timing of orders received within the quarter. The
Company has not experienced significant effects of seasonality to date;
however, the operating results of many software companies reflects seasonable
fluctuations, and there can be no assurance that the Company will not
experience such trends in the future. As a result of the foregoing factors,
the Company's operating results and the Company's stock price may be subject to
volatility.
Rapid Technology Change
The consumer software industry is undergoing rapid changes, including
evolving industry standards, frequent new product introduction, and changes in
consumer requirements and preferences. The Company's success will depend upon,
among other things, its ability to achieve and maintain technological and
quality leadership by anticipating and developing new products. To date, the
Company's product development efforts have been directed towards multimedia
PC's. While the Company expects that the installed base of multimedia PC's
will continue to grow at a rapid pace, it recognizes that consumer preference
can quickly shift to other platforms and formats. There can be no assurance
that the Company will be able to create software titles for other emerging
hardware platforms. There can be no assurance that the Company will respond
effectively to market or technological changes, or compete successfully in the
future. If the Company is unable to meet the challenge of a rapidly evolving
software industry in a timely manner, this inability could have a material
adverse effect on the Company's operations.
Risks Associated with New Product Development
and Timely Introduction of New and Enhanced Products
The Company's future success will depend to a substantial degree upon its
ability to enhance its existing products and to develop and introduce, on a
timely and cost-effective basis, new products and features that meet customer
demands and emerging and evolving industry standards. The Company budgets
amounts to expend for research and development based on planned product
introductions and enhancements; however, actual expenditures may significantly
differ from budgeted expenditures. Inherent in the product development process
is a number of risks. The development of new, technologically advanced
multimedia products is a complex and
18
<PAGE> 22
uncertain process requiring high levels of innovation, as well as accurate
anticipation of technological and market trends. The introduction of new or
enhanced products also requires the Company to manage the transition from older
products in order to avoid excessive levels of older product inventories and
ensure that adequate supplies of new products can be delivered to meet customer
demand. There can be no assurance that the Company will successfully develop,
introduce or manage the transition to new products. The Company may experience
delays in the introduction of its products due to factors internal and external
to the Company. Any delays in the introduction or shipment of new or
enhanced products or the inability of such products to gain market acceptance
could adversely affect the Company's operating results, particularly on a
quarterly basis.
Risks Associated with Development of Retail Distribution Channel
The Company distributes its products through distributors, major computer
and software retailers, consumer electronic stores, discount warehouse stores
and other specialty retailers. The Company often sells on a purchase order
basis, and there are often no minimum purchase obligations on behalf of any
distributor or retailer. Distribution and retailing companies in the computer
industry have from time to time experienced significant fluctuations in their
businesses, and there have been a number of business failures among these
entities. The insolvency or business failure of any significant distributor or
retailer of the Company's products could have a material adverse affect on the
Company's business, operating results and financial condition. Further,
certain mass-market retailers have established exclusive relationships under
which such retailers will buy customer software only from one or two
intermediaries. In such instances, because of the price or other terms imposed
by such intermediaries, the Company may be unable to market its products
through such retailers on the terms that the Company deems acceptable.
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
consumer software producers for adequate levels of shelf space and promotional
support for retailers. The Company expects that as the number of consumer
multimedia products increases this competition for shelf space and in-store
marketing attention will intensify. Due to increased competition for limited
shelf space, retailers and distributors are increasingly in a better position
to negotiate favorable terms of sale, including price discounts, price
protection and product return policies. Retailers often require multimedia
publishers to pay fees or provide other accommodations in exchange for shelf
space. The Company's products constitute a relatively small percentage of each
retailer's sales volume, and there can be no assurance that retailers will
continue to purchase the Company's products or provide the Company's products
with adequate shelf space and promotional support.
Competition
All aspects of the Company's business are highly competitive. Although
management believes that it has certain proprietary advantages over its
competitors, some competitors have
19
<PAGE> 23
greater financial, technical and marketing resources, have established
greater name recognition in the marketplace, and have larger customer bases and
distribution systems. There can be no assurance that the Company will be able
to compete successfully with its existing or new competitors. The Company
believes that its ability to compete successfully depends upon a number of
factors, including, market presence, access to capital, the pricing policies of
its competitors, and the timing of introductions of new products by the Company
and its competitors. There can be no assurances that the Company will have the
resources required to respond effectively to market or technological changes or
to compete successfully with current or future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results and/or financial position.
Risks Associated with Internet Distribution
While the number of businesses utilizing the Internet as a vehicle of
product marketing has grown rapidly, it is not known whether this market will
continue to develop such that sufficient demand for the Company's services will
emerge and become sustainable. Similarly, it is not known whether individuals
will utilize the Internet to any significant degree as a means of purchasing
goods and services or effecting payment. The adoption of the Internet for
commerce, particularly by those individuals and enterprises that historically
have relied upon traditional means of commerce, will require a broad acceptance
of new methods of conducting business and exchanging information. Moreover,
the security and privacy concerns of existing and potential users of the
Company's services, as well as concerns related to confidentiality, may inhibit
the growth of Internet commerce generally. The Internet may not prove to be a
viable commercial marketplace because of inadequate development of the
necessary infrastructure, such as adequate capacity, a reliable network
backbone or timely development of complementary products, such as high speed
modems. There can be no assurance that commerce over the Internet will become
widespread or that a market for the Company's products will emerge over this
medium.
Risks Associated with International Expansion
A component of the Company's strategy is its planned expansion into
international markets. To date, the Company has no experience in marketing and
distributing its products internationally. There can be no assurance that the
Company will be able to successfully market, sell and deliver its products in
these markets. In addition, there are certain risks inherent in doing business
in international markets such as unexpected changes in regulatory requirements,
export restrictions, export controls, tariffs and other barriers, political
instability, fluctuations in currency exchange rates and potentially adverse
tax consequences, which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business,
financial condition or operating results.
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<PAGE> 24
In addition, while U.S. and Canadian copyright law, international
conventions and international treaties may provide meaningful protection
against unauthorized duplication of software, the laws of some foreign
jurisdictions may not protect proprietary rights to the same extent as the laws
of Canada or the United States. Software piracy has been, and can be expected
to be, a persistent problem for the software industry. Although to date the
Company has not experienced any of the foregoing factors to any significant
extent, there can be no assurance that these factors will not be experienced by
the Company in the future.
Proprietary Rights and Risk of Infringement
The Company relies on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements and name recognition are essential to
establishing and maintaining a technological leadership position. The Company
seeks to protect its software, documentation and other written materials under
trade secret and copyright laws that afford only limited protection. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its multimedia products exists, piracy
can be expected to be a persistent problem. The Company distributes its
multimedia products in the United States and Canada. There can be no assurance
that the Company will not distribute its multimedia products in the future to
countries where the enforcement of proprietary rights may be uncertain.
The Company is not aware that its products are infringing any proprietary
rights of third parties. However, on June 9, 1997 the Company received a
letter from counsel to Laser Media Inc. ("LM") claiming that LM owns a federal
trademark registration for the mark "Lasermedia" and alleging that the
Company's use of the mark "Lasermedia" in its Internet domain name constitutes
an infringement of LM's trademark rights. LM is located in Los Angeles,
California. LM demands that the Company immediately cease using the name and
mark "Lasermedia". The Company has confirmed that LM owns federal trademark
registrations for the mark "Lasermedia" and for several other marks using the
term "Lasermedia". The Company responded to LM by offering to change its
domain name. However, LM has instituted a compliant procedure with Network
Solutions. Network Solutions, under the authority of the Department of
Defense, assigns Internet domain names on a first-come, first-serve basis. If
there is a conflict, Network Solutions can suspend the use of the name. It has
no authority to impose any other legal remedy. The Company has offered a
compromise to share the "Lasermedia" domain name with differentiations and
cross-references. LM has declined this solution. The Company intends to
continue to seek an amicable compromise of this matter.The Company has filed
trademark applications in both the U.S. and Canada for "LaserMedia". There can
be no assurance, however, that third parties will not claim infringement by the
Company of their
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<PAGE> 25
intellectual property rights. The Company expects that multimedia product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources, and cause
product shipment delays. In addition, such claims could require the Company to
cease the manufacture, use and sale of allegedly infringing products, and to
incur significant costs and expenses to develop non-infringing products or to
obtain licenses. There can be no assurance that the Company would be able to
develop alternative products or to obtain such licenses or, if a license were
obtainable, that the terms would be commercially acceptable to the Company. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially adversely affected.
Dependence on Key Personnel
The Company believes that its future success will depend in large part
upon the services of its President Erik Schannen. Mr. Schannen's employment
agreement with the Company is for a five year term which began June 27, 1997.
At the end of this five year term, Mr. Schannen has the option to renew the
employment agreement for a further term of five years upon the same terms and
conditions. However, the Company currently has no key-man insurance for Erik
Schannen. There can be no assurance that other persons of similar talent would
be available to the Company if Mr. Schannen was not available.
Management of Growth
The Company is currently experiencing rapid growth and expansion, which
has placed, and will continue to place, a significant strain on its
administrative, operational and financial resources, and increased demands on
its systems and controls. This growth has resulted in a continuing increase in
the level of responsibility for both existing and new management personnel. The
Company anticipates that its continued growth will require it to recruit, hire,
train and retain a substantial number of computer consultants, managers, and
sales and marketing personnel. The Company's ability to manage its growth
successfully will also require the Company to continue to expand and improve
its operating, management and financial systems and controls on a timely basis.
There can be no assurance that the Company will be able to manage this growth
effectively, and if unable, to do so, the Company's business, operating results
and financial condition will be materially adversely affected.
Manufacturing Risks
The Company's products are manufactured by unaffiliated third parties in
accordance
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<PAGE> 26
with the Company's specifications. While the Company to date has not
experienced any material delays or interruptions in the manufacture of the
Company's products, there can be no assurance that such delays or interruptions
will not occur or, if any do occur, that they could be remediated without
further delay and without materially and adversely affecting the Company's
business, operating results or financial condition. Unanticipated delays in
receipt of shipments or price increases from any of the Company's contract
manufacturing sources could adversely affect the Company's business.
Product Liability
Although the Company has not experienced any product liability claims, the
sale and support of products by the Company entails the risk of such claims.
The Company currently maintains product liability insurance and is required to
maintain same according to its various distribution agreements. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Dividends
It is the current policy of the Company's board of directors to retain any
earnings to finance the operations and expansion of the Company's business.
The Company's loan agreement with Cune Management Inc. prohibits the
declaration or payment of cash dividends. Therefore, the payment of any cash
dividends on the common shares is unlikely in the foreseeable future.
Potential Volatility of Stock Price
The trading price of the common shares is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to the copyrights or proprietary rights, conditions
and trends in the multimedia industry, adoption of new accounting standards
affecting the multimedia industry, changes in financial estimates by securities
analysts, general market conditions and other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of technology companies. The Company's common shares are being traded
on the Canadian Dealer Network on the over-the-counter market. The public
float is approximately 3,000,000 common shares. Broad market fluctuations may
materially adversely affect the market price of the common shares.
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<PAGE> 27
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal product research and development, marketing,
sales, customer support, administrative, and warehousing activities are
conducted from an approximately 10,000 square feet facility located at 11
Charlotte Street, Toronto, Ontario, M5V 2H5. This facility is leased to the
Company by an unaffiliated third party for a term of five years expiring April
16, 2002.
Management believes that should it be needed, suitable additional space
will be available to accommodate expansion of the Company's operations on
commercially reasonable terms.
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<PAGE> 28
ITEM 3. LEGAL PROCEEDINGS
Trademark Claims
On June 9, 1997 the Company received a letter from Laser Media Inc. ("LM")
of Los Angeles, California which requested that the Company cease and desist
using the domain name "Lasermedia" on the Internet. The Company offered to
change its domain name. However, LM chose to institute a compliant procedure
with Network Solutions ("Network Solutions"). Network Solutions, under the
authority of the Department of Defense, assigns Internet domain names on a
first-come, first-serve basis. If there is a conflict, Network Solutions can
suspend the use of the name. It has no authority to impose any other legal
remedy. The Company has offered a compromise to share the "Lasermedia" domain
name with differentiations and cross-references. LM has declined this
solution. The Company intends to continue to seek an amicable compromise of
this matter. The Company has filed trademark applications in both the U.S. and
Canada for "LaserMedia."
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<PAGE> 29
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of June 10, 1998 by
(i) all stockholders known by the Company to be beneficial owners of more than
10% of the outstanding common stock, and (ii) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
IDENTITY OF SHARES
PERSON OR GROUP OWNED PERCENT
<S> <C> <C>
Schannen, Erik 3,500,000 26.6%
Lasermedia Communications
Corp., 11 Charlotte Street,
Toronto, Ontario M5V 2H5
All directors and officers 3,500,000 26.6%
as a group (4 persons)
</TABLE>
As far as known to the Company, the Company is not directly or indirectly
owned or controlled by another corporation or by any governmental authority.
The Company does not know of any arrangements which may at a subsequent date
result in a change in control of the Company.
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<PAGE> 30
ITEM 5. NATURE OF TRADING MARKET
Trading History; Dividends
- --------------------------
On August 14, 1997 the common shares of the Company commenced trading and
quotation on the Canadian Dealing Network Inc., the over-the-counter market in
Ontario. The common shares are quoted on CDN under the trading symbol "LMCD".
The common shares of the Company are not traded on any United States market.
The following table presents the low and high trading ranges and average weekly
trading volume of the common stock of the Company (in Canadian dollars) during
the third quarter and fourth quarter of fiscal 1997 and the first quarter of
1998:
<TABLE>
<CAPTION>
FISCAL AVG. WEEKLY
QUARTER LOW HIGH VOLUME
------- --- ---- ------
<S> <C> <C> <C>
August 14 - September 30, 1997 CDN$1.45 CDN$1.70 267,803
October 1 - December 31, 1997 CDN$0.80 CDN$1.75 187,105
January 1, 1998 - March 31, 1998 CDN$0.75 CDN$1.85 1,251,980
</TABLE>
The Company has paid no cash dividends on the common shares and does not
intend to do so in the foreseeable future. Rather, the Company intends to
retain its earnings, if any, to provide capital for product development and
Company growth.
The authorized capital of the Company consists of an unlimited number of
Common Shares and 2,000,000 voting preference shares. The number of preference
shares issuable by the Company at any one time is limited to 500,000.
The Company believes that approximately 686,150 common shares are owned
of record by 14 persons resident in the United States.
27
<PAGE> 31
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada that
restrict the export or import of capital, including, but not limited to,
foreign exchange controls, or that affect the remittance of dividends, interest
or other payments to nonresident holders of the Company's common stock, other
than withholding tax requirements. Any such remittances, however, are subject
to withholding tax.
There is no limitation imposed by Canadian law or by the Company's bylaws
or other constituent documents of the Company on the right of nonresident or
foreign owners to hold or vote shares of common stock, other than as provided
in the Investment Canada Act (Canada) (the "Investment Canada Act"). The
following summarizes the principal features of the Investment Canada Act.
The Investment Canada Act requires certain "non-Canadian" (as defined in
the Investment Canada Act) individuals, governments, corporations and other
entities who wish to acquire control of a "Canadian business" (as defined in
the Investment Canada Act) to file either a notification or an application for
review with the Director of Investments appointed under the Investment Canada
Act. The Investment Canada Act requires that in certain cases an acquisition
of control of a Canadian business by a "non-Canadian" must be reviewed and
approved by the Minister responsible for the Investment Canada Act on the basis
that the Minister is satisfied that the acquisition is "likely to be of net
benefit to Canada", having regard to criteria set forth in the Investment
Canada Act.
With respect to acquisitions of voting shares, only those acquisitions of
voting shares of a corporation that constitute acquisitions of control of such
corporation are reviewable under the Investment Canada Act. The Investment
Canada Act provides detailed rules for the determination of whether control has
been acquired, and, pursuant to those rules, the acquisition of one-third or
more of the voting shares of a corporation may, in some circumstances, be
considered to constitute an acquisition of control. Certain reviewable
acquisitions of control may not be implemented before being approved by the
Minister responsible for the Investment Canada Act. If the Minister does not
ultimately approve a reviewable acquisition which has been completed, the
non-Canadian person or entity may be required, among other things, to divest
itself of control of the acquired Canadian business. Failure to comply with
the review provisions of the Investment Canada Act could result in, among other
things, a court order directing the disposition of assets or shares.
28
<PAGE> 32
ITEM 7. TAXATION
The following summary of the material Canadian federal income tax
considerations generally applicable in respect of the common shares reflects
the Company's opinion. The tax consequences to any particular holder of common
shares will vary according to the status of that holder as an individual,
trust, corporation or member of a partnership, the jurisdiction in which that
holder is subject to taxation, the place where that holder is resident and,
generally, according to that holder's particular circumstances. This summary
is applicable only to holders who are resident in the United States, have never
been resident in Canada, deal at arm's-length with the Company, hold their
common shares as capital property and who will not use or hold the common
shares in carrying on business in Canada. Special rules, which are not
discussed in this summary, may apply to a United States holder that is an
issuer that carries on business in Canada and elsewhere.
This summary is based upon the provisions of the Income Tax Act of Canada
and the regulations thereunder (collectively, the "Tax Act, or ITA") and the
Canada-United States Tax Convention as amended by the Protocols thereto (the
"Tax Convention") as at the date of the Registration Statement and the current
administrative practice of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account Canadian provincial income tax consequences.
This summary is not exhaustive of all possible income tax consequences.
It is not intended as legal or tax advice to any particular holder of common
stock and should not be so construed. Each holder should consult his or her
own tax advisor with respect to the income tax consequences applicable to such
holder in his or her own particular circumstances.
North American Free Trade Agreement (Canada)
The Investment Canada Act was amended with the North American Free Trade
Agreement (NAFTA) to provide for special review thresholds for Americans
(including "American-controlled "entities" as defined in the Investment Act).
Under the Investment Canada Act, as amended, an investment in the Registrant's
common shares by an American would be reviewable only if it was an investment
to acquire control of the Registrant and the value of the assets of the
Registrant was equal to or greater than a specified amount (the "Review
Threshold"), which increases in stages. The Review Threshold is currently
CDN$150 million and remains at CDN$150 million in constant 1992 dollars
(calculated as prescribed in the Investment Act) after 1992.
Disposition of Common Shares
If a non-resident were to dispose of common shares of the Company to
another Canadian corporation which deals or is deemed to deal on a non-arm's
length basis with the non-resident
29
<PAGE> 33
and which, immediately after the disposition, is connected with the
Company (i.e., which holds shares representing more than 10% of the voting
power and more than 10% of the market value of all issued and outstanding
shares of the Company), the amount by which the fair market value of any
consideration (other than any shares of the purchaser corporation) exceeds the
paid-up capital of the common shares sold will be deemed to be taxable as a
dividend paid by the purchasing corporation, either immediately or eventually
by means of a deduction in computing the paid-up capital of the purchasing
corporation, and subject to withholding taxes as described below.
Under the Tax Act, a gain from the sale of common shares by a non-resident
will not be subject to Canadian tax, provided the shareholder (and/or persons
who do not deal at arm's length with the shareholder) have not held a
"substantial interest" in the Company (25% or more of the shares of any class
of the Company's stock) at any time in the five years preceding the
disposition. Generally, the Tax Convention will exempt from Canadian taxation
any capital gain realized by a resident of the United States, provided that the
value of the common shares is not derived principally from real property
situated in Canada.
Dividend
In the case of any dividends paid to non-residents, the Canadian tax is
withheld by the Company, which remits only the net amount to the shareholder.
By virtue of Article X of the Tax Convention, the rate of tax on dividends paid
to residents of the United States is generally limited to 15% of the gross
dividend (or 5% in the case of certain corporate shareholders owning at least
10% of the Company's voting shares pending ratification of the Protocol
amending the treaty; the Protocol has been ratified by the USA and is awaiting
ratification in Canada). In the absence of the Tax Convention provisions, the
rate of Canadian withholding tax imposed on non-residents is 25% of the gross
dividend. Stock dividends received by non-residents from the Company are
taxable by Canada as ordinary dividends and therefore the withholding tax rates
will be applicable.
Where a holder disposes of common shares to the Company (unless the
Company acquired the common shares in the open market in the manner in which
shares would normally be purchased by any member of the public), this will
result in a deemed dividend to the U.S. holder equal to the amount by which the
consideration paid by the Company exceeds the paid-up capital of such stock.
The amount of such dividend will be subject to withholding tax as described
above.
Capital Gains
A non-resident of Canada is not subject to tax under the ITA in respect of
a capital gain realized upon the disposition of a share of a class that is
listed on a prescribed stock exchange unless the share represents "taxable
Canadian property" to the holder thereof. A common share
30
<PAGE> 34
of the Company will be taxable Canadian property to a non-resident holder
if, at any time, during the period of five years immediately preceding the
disposition, the non-resident holder, persons with whom the non-resident holder
did not deal at arm's length, or the non-resident holder and persons with whom
he/she did not deal at arm's length owned 25% or more of the issued shares of
any class or series of the Company. In the case of a non-resident holder to
whom shares of the Company represent taxable Canadian property and who is
resident in the United States, no Canadian tax will be payable on a capital
gain realized on such shares by reason of the Tax Convention unless the value
of such shares is derived principally from real property situated in Canada or
the non-resident holder previously held the shares while resident in Canada.
The Company believes that the value of its common shares is not derived from
real property situated inside Canada.
31
<PAGE> 35
ITEM 8. SELECTED FINANCIAL DATA
The following tables provide a summary of certain financial information
for fiscal years 1997, 1996, and 1995. The selected financial data set forth
below as of December 31, 1997, 1996, and 1995 (audited) have been derived from
the Company's financial statements which were prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP"), which are
different in some respects from generally accepted accounting principles in the
United States ("U.S. GAAP"). See the reconciliation footnote set forth in Note
12 to the Financial Statements appearing under Item 19 hereof. The information
presented should be read in conjunction with such Consolidated Financial
Statements and related Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
32
<PAGE> 36
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
===============================================================================
CONSOLIDATED STATEMENT OF INCOME
AS OF
DECEMBER 31(1)
--------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE
Sales CDN$ 588,824
Sale of computer
software (Note 11) 1,950,000
============= ============= =============
CDN$2,538,824 CDN$ 383,154 CDN$ 141,478
OPERATING EXPENSES
Cost of revenue 322,621 269,707 120,825
General and administrative(2) 1,255,018 111,473 13,663
Sales and marketing 690,196 83,251 18,902
------------- ------------- -------------
2,267,835 464,437 153,380
NET INCOME (LOSS) CDN$ 270,989 CDN$ (81,277) CDN$ (11,912)
============= ============= =============
BASIC EARNINGS PER SHARE CDN$ 0.02 CDN$ (0.01) CDN$ NIL
============= ============= =============
AVERAGE SHARES OUTSTANDING - BASIC 11,950,243 11,033,532 11,033,532
FULLY DILUTED EARNINGS PER SHARE CDN$ 0.02 CDN$ (0.01) CDN$ NIL
============= ============= =============
AVERAGE SHARES OUTSTANDING -
FULLY DILUTED 16,022,711 11,033,532 11,033,532
NUMBER OF COMMON SHAREHOLDERS 1,123 2 2
============= ============= =============
</TABLE>
- ----------------------------
1 The selected data as of and for the years ended December 31, 1997, 1996, and
1995 are derived from the audited financial statements of Company. The
consolidated financial statement represents a continuation of the financial
statements of the wholly-owned subsidiary, Lasermedia. The only other
subsidiary of the Company, Verisim, has not as yet generated income.
2 In fiscal 1997, the Company issued 1,850,000 shares of common stock in lieu
of consulting services performed having a fair market value of C$462,500
which is included in this figure.
34
<PAGE> 37
ITEM 9. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND OPERATING RESULTS
FOR LASERMEDIA
Discussion of Operations
For the year ended December 31, 1997, the Company recognized net income of
CDN$270,989 compared to a net loss of CDN$81,277 for the fiscal year ended
December 31, 1996. The increase in income is attributable to the sale by the
Company of its Active Trainer((TM)) family of software to Softech L.P. for
CDN$1,950,000. Excluding this transaction, the Company would have incurred a
CDN$1,679,011 loss during the fiscal year ended December 31, 1997.
Product sales during the fiscal year ended December 31, 1997 increased by
approximately CDN$205,670 to CDN$588,824 from CDN$383,154 for the comparable
period of 1996. This increase is attributed to higher unit sales which have
resulted from enhanced product distribution. Costs of sales increased
approximately CDN$50,000 during fiscal year 1997 over the costs
of sales for fiscal year 1996.
The gross margin on product sales increased during the year ended
December 31, 1997 to approximately 45% from 30% in 1996. However, the Company
anticipates that at least until it has paid to Softech the sum of
CDN$1,950,000, the obligation to purchase products from and pay royalties to
Softech will adversely impact the Company's cost of sales and gross sales
margin. In 1997, costs of sales included CDN$238,334 of advertising costs and
payments to Softech L.P.
Currently, in excess of 90% of the Company's sales revenue is derived from
product sales in the U.S. The Company also sells products in Canada,
Australia, England and Italy. The sales in Australia, England and Italy are to
customers who pay cash on delivery.
The Company's research and development expenditures are primarily to
develop on-line gaming through Verisim, to upgrade current products, and to
develop new products.
During the fiscal year ended December 31, 1997, the Company's staff
increased from 7 to 35 employees. This resulted in an increase of
approximately 1,126% of office and general expenses over office and general
expenses during the fiscal year ended December 31, 1996. Consulting fees
during the period included the value of shares of stock issued to consultants
in the formation of the Company. Sales and marketing fees increased
approximately 829% over sales and marketing fees for the year ended December
31, 1996, as a result of advance payments to distributors, increased product
distribution and greater advertising and promotion costs.
Fiscal Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
For the year ended December 31, 1996, the Company had sales of CDN$383,154
35
<PAGE> 38
compared to sales of CDN$141,478 for the period ended December 31, 1995.
This was an increase of 270%. This increase is attributable to higher unit
sales of Active Trainer(TM). Cost of sales for the period increased from
CDN$120,825 to CDN$269,707, an increase of 232%, due to increases in unit sales
and development costs. Thus, gross margins only increased from 15% of sales in
fiscal year 1995 to 30% of sales in fiscal year 1996. Expenses of CDN$464,437
increased by 303% from CDN$153,380 largely because of increased wages and
benefit costs, higher costs associated with expanded participation in various
trade shows, and higher office and general expenses.
During this period, the Company experienced a net loss of CDN$81,277
compared to a net loss of CDN$11,912 for the period ended December 31, 1995.
Liquidity and Capital Resources
The Company's principal working capital needs are for the production,
carrying and marketing of products, developing and acquiring new products, and
maintaining and updating its Internet website. Through December 31, 1996, the
Company funded its operations with cash from operations, capital from stock
sales and advances from affiliates. During the fiscal year ended December 31,
1997, the Company funded its operations from product sales, sale of the Active
Trainer(TM) family of software, capital from stock sales, and borrowings from
commercial sources.
As of December 31, 1997, the Company had net working capital of
CDN$270,989. Working capital was provided primarily from the sale of the Active
Trainer(TM) family of software to Softech L.P., an unaffiliated limited
partnership, for CDN$1,950,000. Working capital was also provided by product
sales as well as loans from the Ontario Film Development Corporation and another
unrelated third party. The loan from the Ontario Film Development Corporation
is unsecured and non-interest bearing. The loan from the other unrelated party
is unsecured, bears interest at 7% per annum, and is due on demand.
During the first quarter of 1997, the Company settled its CDN$40,000 debt
to one of its shareholders, Cune Management Limited, a financial consulting
firm. The loan from Cune Management Limited was non-interest bearing and there
is no reconciling disclosure with respect to U.S. GAAP with regard to the
recognition of the fair value of interest expense since it is not material.
However, on September 18, 1997, the Company agreed to loan Cune Management
Inc., from time to time, the principal sum, in the aggregate of up to
CDN$250,000. The loan bears interest at the rate of 12% per annum. Cune
Management Inc. may repay the loan from time to time in whole or in part
without penalty, notice or bonus. The loan is scheduled to mature on September
18, 1998. Cune Management Inc. created a security interest in its shares of
the Company's common stock for the benefit of the Company as security for the
loan. The Company entered into the loan agreement with Cune Management Inc.
for investment purposes. As of June 10, 1998, Cune Management Inc. held
500 shares of the Company's common stock, as well as Warrants to purchase
150,000 shares of the Company, which are exercisable at any time through March
31, 2002.
36
<PAGE> 39
During the fourth quarter of 1996, the Company settled its CDN$251,786
debt to Laserset Graphics Inc., which was acquired by Lasermedia in the fourth
quarter of 1997 and was subsequently amalgamated on December 31, 1997.
The Company is in repayment under a loan agreement with the Bank of Nova
Scotia. The loan proceeds were used to finance leasehold improvements. The
loan bears interest at an annual rate equal to the bank's prime rate plus 2.5%,
is due on demand, and is secured by a general security agreement encumbering
all of the Company's assets. The loan balance was CDN$183,333 as of December
31, 1997. The Company is currently negotiating to obtain a $300,000 line of
credit from the Bank of Nova Scotia.
The Company expects to meet its short-term liquidity needs using its cash
resources, revenue from product sales, and borrowings. The Company believes
that these sources of cash will be sufficient to meet its operating needs for
at least 12 months. The Company may undertake one or more capital formation
transactions, including the public offering or private placement of shares of
capital stock, to meet its long-term product development and acquisition goals.
There can be no assurance that funds will be available to the Company in
sufficient amounts to finance the growth of the business.
The Company's products generally retail at approximately US$45.00 and
wholesale at US$30.00 with a cost to the Company of 7.00 (US$5.00) exclusive of
research and development costs and fees payable to Softech, L.P.
The Company believes that the technology it is developing has broad uses
beyond the Company's products and services. Accordingly, as an integral part of
its business, the Company intends to enter into license, royalty, use,
license/leaseback and similar transactions to enhance its revenue. The sale of
the Active Trainer(TM) family of software is the first of these types of
transactions that the Company hopes to undertake to realize upon the value of
its technology. Lasermedia is the exclusive reseller of the Active Trainer(TM)
family of software and pays a royalty to Softech L.P. equal to 70% of the gross
receipts from the sale of Active(TM) products minus certain costs such as the
cost of purchasing Active(TM) products from Softech L.P., costs of goods sold
(e.g. shipping, duties and taxes, packaging, manufacturing), general
administrative costs (e.g. insurance, copyrights and patents, defense of
copyrights and patents, translations), advertising and marketing costs, and up
to CDN$50,000 in employment costs. After Softech L.P. has been paid
CDN$1,950,000, Softech L.P.'s royalty rate declines to 30%. As of March 31,
1998, Lasermedia has paid $250,000 to Softech L.P. Lasermedia is obligated to
purchase a minimum of CDN$62,500 worth of Active(TM) product units for each
fiscal quarter in 1998. Lasermedia has not yet achieved sales in excess of the
minimum guarantee. The units are subject to declining prices ranging from
CDN$8.00 per unit for the first 100,000 units to CDN$3.25 per
37
<PAGE> 40
unit after 750,000 units have been purchased. Lasermedia entered into the sale
and license-back transaction with Softech L.P. to accelerate realization of
value of technology developed by Lasermedia, which, because of technological
advances, could have limited long term proprietary value. The Company plans to
engage in a number of sale and license-back transactions with other new software
technology it develops. Proceeds from the sale of software technology will be
used to defray operating expenses and to support research and development.
Approximately $1 million of the CDN$1,950,000 received by Lasermedia from the
sale of the Active Trainer(TM) family of software was allocated to research and
development.
In connection with the sale and leaseback transaction, Lasermedia issued
to Softech L.P. a Series E Warrant to purchase 2,751,666 shares of Lasermedia's
common stock at an exercise price of CDN$0.75 per share. The Series E Warrant
is scheduled to expire, unless sooner exercised, in March 2002. Softech L.P.
distributed the Series E Warrant to its partners.
Year 2000
All of the Company's products, programs, services, and other computer
equipment are year 2000 compliant. The Company is completing a preliminary
assessment of year 2000 issues faced by its suppliers and major customers.
Based on a preliminary assessment, the Company does not believe that the year
2000 issue will have a material adverse effect on the Company's results of
operations and financial condition.
Foreign Currency Strategy
The Company has not adopted and does not intend to adopt, a strategy to
hedge against fluctuations in foreign currency. However, the Company does
reserve the right to implement such a strategy in the future. Currently in
excess of 90% of the Company's revenue is derived from sales in the U.S. The
Company's costs are generally paid in Canadian dollars. As the Canadian dollar
is depressed in comparison to the U.S. dollar, the Company's costs are lower
38
<PAGE> 41
than if such costs were paid in U.S. dollars.
Inflation
The Company has not experienced any significant inflationary cost
increases during the past three fiscal years.
39
<PAGE> 42
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE
<S> <C> <C>
Erik Schannen 30 President and Director
Brian Gibson 42 Chief Operating Officer, Chief
Financial Officer
Gordon Cowie 59 Director
Samuel Paul 64 Secretary and Director
</TABLE>
The Company's by-laws provide for a board consisting of five directors,
but allows board actions as long as there are at least three directors.
Vacancies on the board of directors may be filled by board action pending the
election of directors at an annual or special meeting of the stockholders. The
board of directors does not anticipate appointing new directors to fill the
vacancies on the board in the foreseeable future.
BUSINESS EXPERIENCE
- -------------------
Mr. Schannen co-founded and has been the President of Lasermedia since
1994. Mr. Schannen has been involved in the computer graphics and software
field for the past 12 years. Before founding Lasermedia, for seven years he
was a principal of Laserset Graphics Inc., a graphic design company which was
acquired by Lasermedia in the fourth quarter of 1997 and was subsequently
amalgamated into Lasermedia on December 31, 1997. Mr. Schannen has a
comprehensive knowledge of the industry, the technology and is able to program
in several computer languages. He is currently an active member of IMAT, the
International Multimedia Developers Association, and the Apple Multimedia
Program; and is teaching a program in CD-ROM Publishing and Development at the
Learning Annex (a major Toronto-based adult education facility).
Mr. Gibson has been the Chief Operating Officer and the Chief Financial
Officer of the Company since September 4, 1997. For more than five years
before joining the Company, he served as a co-founder and principal of
Information Systems Architects Inc., a software consulting firm. As Chief
Operating Officer (COO), Mr. Gibson is responsible for overseeing the
management of the Company. Mr. Gibson is also the Chief Financial Officer. He
attained his Chartered Accountancy designation with Coopers & Lybrand in 1982.
Mr. Cowie has been a director of the Company since December 5, 1997. He
has been a retired civil engineer since 1994. From 1990 to 1993, he was a
self-employed engineer and
40
<PAGE> 43
worked on a number of projects including providing litigation support
services, assisting in certain design aspects for industrial buildings in
Toronto and preparing plans for residential sub-divisions. He has over 30
years experience in various engineering projects in Canada and Saudi Arabia.
Mr. Paul has served as a director of the Company since February 14, 1997.
He has served as the Chief Financial Officer of American Entertainment Group
Inc. since 1993. From 1962 to 1993, Mr. Paul served as a founding member of
the firm of Paul and Paul, Chartered Accountants, which specialized in
financial and consulting services to small and medium sized businesses.
41
<PAGE> 44
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid to officers and directors of the
company during fiscal 1997 and 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
- --------------------------------------------------------------------------------------------------------------
OTHER SECURITIES SHARES OR
NAME AND PRINCIPAL ANNUAL UNDER RESTRICTED LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTION SHARE UNITS PAYOUTS COMPENSATION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ERIK SCHANNEN(1) 1996 CDN$15,196 CDN$ - CDN$ 18,150 Nil Nil
PRESIDENT 1997 CDN$55,385 CDN$ - CDN$ 740(2) 250,000(3) 3,500,000 N/A Nil
- --------------------------------------------------------------------------------------------------------------
BRIAN GIBSON 1997 CDN$23,077 CDN$ - CDN$ 477(2) 170,000(4) N/A Nil
- --------------------------------------------------------------------------------------------------------------
SAMMUAL PAUL 1997 CDN$ - CDN$ - CDN$ - 10,000(5) N/A Nil
- --------------------------------------------------------------------------------------------------------------
GORDON COWIE 1997 CDN$ - CDN$ - CDN$ - 10,000(6) N/A Nil
==============================================================================================================
</TABLE>
1. Compensation was not paid to any other director or officer during 1996.
2. Represents group benefits plan premiums paid by the Company.
3. Exercise price of CDN$1.50 for 100,000 options and exercise price of
CDN $1.00 for other 150,000 options.
4. Exercise price of CDN$0.90 for options.
5. Exercise price of CDN$1.50 for options.
6. Exercise price of CDN$1.25 for options.
During fiscal 1997 and 1996, no funds were set aside or accrued by the
Company to provide pension, retirement or similar benefits for directors or
executive officers.
42
<PAGE> 45
ITEM 12. OPTIONS TO PURCHASE SECURITIES
1997 Stock Option Plan
On June 27, 1997, the Company adopted an equity incentive plan (the "1997
Stock Option Plan"). Under the 1997 Stock Option Plan the Company may grant
stock options to directors, officers, key employees, consultants and advisors
to allow them to participate in the ownership and growth of the Company. The
Board of Directors has discretion, within the limits of the 1997 Stock Option
Plan and subject to the approval of such regulatory authorities as may have
jurisdiction, to designate recipients, amounts, exercise prices and other terms
and conditions of the stock options. At no time shall the number of shares
reserved for issuance to any one person under the 1997 Stock Option Plan or
otherwise exceed five (5%) percent of the outstanding shares. As of December
31, 1997, 883,000 shares of common stock were reserved for issuance under the
Plan.
Under the 1997 Stock Option Plan, the full purchase price payable under
the option shall be paid in cash upon the exercise thereof. Options may not be
granted for a period exceeding ten (10) years.
Under the 1997 Stock Option Plan, all options will terminate 30 days
following the termination of the optionee's employment or other relationship
with the Company. In the case of death or permanent and total disability of
the optionee, his or her options will terminate six months following the death
or permanent and total disability of the optionee.
43
<PAGE> 46
In the event the common shares are exchanged for securities, cash or other
property of any other corporation or entity as the result of a reorganization,
merger or consolidation in which the Company is not the surviving corporation,
the dissolution or liquidation of the Company, or the sale of all or
substantially all the assets of the Company, the board of directors of any
successor corporation or entity may, in its discretion, as to outstanding
options: (a) accelerate the exercise date or dates of such options; (b) upon
written notice to the holders thereof, provided the options have accelerated
pursuant to item (a) above, terminate all such options prior to consummation of
the transaction unless exercised within a prescribed period; (c) provide for
payment of an amount equal to the excess of the market price of the common
stock over the option price of the option shares as of the date of the
transaction, in exchange for the surrender of the right to exercise such
options; or (d) provide for the assumption of such options, or the substitution
therefor of new options, by the successor corporation or entity. At December
31, 1997, option holders held options to purchase a total of 883,000 shares of
the Company common stock at exercise prices ranging from CDN$0.90 to CDN$1.75
per share.
Executive Option Holders
The following table lists options held by officers and directors of the
Company.
<TABLE>
<CAPTION>
Name of Options Exercise
Option Holder Position Outstanding Price
------------ -------- ----------- -----
<S> <C> <C> <C>
Erik Schannen President 150,000 CDN $1.00
100,000 1.50
Brian Gibson Chief Operating Officer 170,000 CDN $0.90
Chief Financial Officer
Samuel Paul Director 10,000 CDN $1.50
Gordon Cowie Director 10,000 CDN $1.25
-------
All executive
officers and
directors (4
persons) 440,000
=======
</TABLE>
Employee Stock Purchase Plan
On July 24, 1995 the Company established an Employee Stock Purchase Plan
to facilitate the purchase of shares of the Company by employees, through
payroll deductions, loans, guarantees or otherwise.
44
<PAGE> 47
Warrants
Each Warrant entitles the holder, subject to the terms and conditions set
forth in the Warrant Certificate, to purchase from the Company one common share
of the Company at the applicable exercise price at any time on or before March
31, 2002. The Company has six series of Warrants issued and outstanding, all
of which feature the same terms and conditions but have varying exercise
prices. All series of warrants were issued in connection with the acquisition
of Lasermedia to warrantholders of that company. As of December 31, 1997, a
total of 3,189,468 shares of common stock were reserved for issuance upon
exercise of the Warrants.
No fractional Shares shall be issued upon exercise of any Warrants and no
payments or adjustments shall be made upon any exercise on account of any cash
dividends on the Shares issued upon such exercise. If any fractional interest
in the Shares would otherwise be deliverable upon the exercise of a Warrant,
the Company shall, in lieu of delivering the fractional share therefor, pay to
the Warrantholder an amount in cash equal to the fair market value of such
fractional interest.
The class, number of shares issuable upon exercise and the exercise price
of the Warrants are subject to adjustment in the event of a merger or sale of
the Company into new warrants of the surviving Company. If the Company is
unable to deliver Shares to the Warrantholder pursuant to the proper exercise
of a Warrant, the Company may satisfy such obligations to the Warrantholder
hereunder by paying to the Warrantholder in cash the difference between the
Exercise Price of all unexercised Warrants and the fair market value of the
Shares to which the Warrantholder would be entitled to upon exercise of all
unexercised Warrants. The Exercise Price of the Warrants is subject to
adjustment if and when the Company issues shares of common stock to its
stockholders at a price less than the fair market value.
45
<PAGE> 48
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Share Purchase Agreements for Laserset Graphics Inc.
On October 16, 1997, Lasermedia, a subsidiary of the Company, acquired
Erik Schannen's 50% interest in Laserset Graphics Inc. through the purchase of
100 shares of capital stock for CDN$100,000. Laserset Graphics Inc. is engaged
in the business of computer design for industry. Mr. Schannen was the
President, CEO and a Director of Lasermedia and was a founder and President of
Laserset Graphics Inc. On November 19, 1997, Lasermedia acquired Cune
Management's 50% interest in Laserset Graphics Inc. through the purchase of 100
shares of capital stock for CDN$100,000. Cune Management is currently a
borrower of the Company (see below). On December 31, 1997, Laserset Graphics
Inc. amalgamated (merged) into Lasermedia
Term Loan Agreement dated September 18, 1997
The Company agreed to loan Cune Management Inc., from time to time, the
principal sum, in the aggregate of up to CDN$250,000. The loan bears interest
at the rate of 12% per annum. Cune Management Inc. may repay the loan from
time to time in whole or in part without penalty, notice or bonus. The loan is
scheduled to mature on September 18, 1998. Cune Management Inc. created a
security interest in its shares of the Company's common stock for the benefit
of the Company as security for the loan.
Cune Management Inc. owns warrants to purchase 150,000 shares of the
Company, which are exercisable at any time through March 31, 2002. Cune
Management Inc. also holds 250,149 shares of the Company's common stock.
Acquisition of Lasermedia on June 27, 1997
The Company acquired all the issued and outstanding common shares and
common share purchase warrants of Lasermedia for a purchase price of
CDN$8,300,000. The purchase price was satisfied by the issuance of 11,033,487
common shares, 600,000 Series A common share purchase warrants, 200,000 Series
B common share purchase warrants, 200,000 Series C common share purchase
warrants, 100,000 Series D common share purchase warrants, 2,866,666 Series E
common share purchase warrants and 258,000 Series F common share purchase
warrants. Erik Schannen, the President and a Director of the Company, owned
32.7% of the Lasermedia shares acquired by the Company. The value of
Lasermedia was determined by an unaffiliated business valuation and litigation
support company.
46
<PAGE> 49
Acquisition of Verisim on May 23, 1997
Lasermedia, a subsidiary of the Company, acquired all of the shares of
capital stock of Verisim from all of its shareholders for a purchase
price of $300,000. The purchase price was satisfied by the issuance of 100,000
shares of common stock of Lasermedia.
47
<PAGE> 50
ITEM 14. NOT REQUIRED
Item 14 is not required for annual reports.
48
<PAGE> 51
ITEMS 15. DEFAULTS UPON SENIOR SECURITIES
The Company has not experienced any material default in the payment of
principal, interest, a sinking or purchase fund installment, or any other
material default not cured within 30 days, with respect to any indebtedness of
the Company exceeding five percent of the total assets of the Company. The
Company has not issued any shares of preferred stock.
49
<PAGE> 52
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
The constituent instruments of the Company defining the rights of the
holders of the registered securities have not been materially modified. In
addition, the rights evidenced by the registered securities have not been
materially limited or qualified by the issuance or modification of other
classes of securities.
50
<PAGE> 53
ITEM 17. NOT REQUIRED
The Company has chosen to provide the financial statements specified in
Item 18 in lieu of Item 17.
51
<PAGE> 54
ITEM 18. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
-------
<S> <C>
Index to Financial Statements ......................................... F-1
Report of Independent Accountants ..................................... F-2
Balance Sheets of the Company as of (Audited)
December 31, 1997 and 1996 ............................................ F-4
Statements of Operations of the Company as of
(Audited) for the Three Years Ended
December 31, 1997, 1996 and 1995 ...................................... F-5
Statements of Cash Flows of the Company as of
(Audited) for the Three Years Ended
December 31, 1997, 1996 and 1995 ...................................... F-7
Statements of Retained Earnings (Deficit) of the Company
(Audited) for the Two Years Ended (Audited) as of
December 31, 1997 and 1996 ............................................ F-8
Notes to Consolidated Financial Statements for Years Ended
December 31, 1997, 1996 and 1995 ...................................... F-8
</TABLE>
F-1
<PAGE> 55
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Partners
of Lasermedia Inc., et al.
We have audited the combined balance sheets of Lasermedia Inc. et al as at
December 31, 1996, 1995 and 1994 and the combined statements of operations,
retained earnings and changes in financial position for the years then ended.
These financial statements are the responsibility of the Company's management
(See Note 1). Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with 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 combined financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,1996,
1995 and 1994 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles.
/s/ Silver Gold Glatt & Grossman
-------------------------------------------
Chartered Accountants
Toronto, Ontario
March 25, 1997
F-2
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Lasermedia Communications Corp.
(formerly Osgoode Holdings Inc.)
We have audited the consolidated balance sheet of Lasermedia
Communications Corp. (formerly Osgoode Holdings Inc.) as at December 31, 1997
and the consolidated statements of income, retained earnings and changes in
financial position 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 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,
1997 and the results of its operations and the changes in its
financial position for the year then ended in accordance with generally
accepted accounting principles.
The comparative figures have been audited by another firm of chartered
accountants.
---------------------------------
Chartered Accountants
Toronto, Ontario
April 30, 1998
F-3
<PAGE> 57
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
(incorporated under the laws of the Province of Ontario)
CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT
Cash and term deposit CDN$ 725,171 CDN$ 15,882
Accounts receivable 581,165 42,451
Inventory 82,412 6,394
Investment tax credit receivable 357,222 84,065
Prepaid expense and sundry assets 167,534 -
Loan receivable (Note 3) 175,000 -
------------- -------------
2,088,504 148,792
============= =============
CAPITAL ASSETS (Note 4) 650,630 29,224
DEFERRED DEVELOPMENT COSTS (Note 5) 404,749 50,494
PUBLISHING RIGHTS (net of accumulated amortization of
$9,279) 102,071 -
GOODWILL (net of accumulated amortization of $12,102) 471,961 -
------------- -------------
CDN$3,717,915 CDN$ 228,510
============= =============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities CDN$ 430,072 CDN$ 100,362
Due to related companies - 221,335
Current portion of long term debt (Note 6) 77,806 -
------------- -------------
507,878 321,697
LONG TERM DEBT (Note 6) 184,900 -
------------- -------------
692,778 321,697
============= =============
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 7) 2,847,337 2
RETAINED EARNINGS (DEFICIT) 177,800 (93,189)
------------- -------------
3,025,137 (93,187)
------------- -------------
CDN$3,717,915 CDN$ 228,510
============= =============
</TABLE>
F-3
<PAGE> 58
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUE CDN$2,538,824 CDN$ 383,154 CDN$ 141,478
OPERATING EXPENSES
Cost of revenue 322,621 269,707 120,825
General and administrative 1,255,018 111,473 13,663
Sales and marketing 690,196 83,251 18,902
------------- ------------ ------------
2,267,835 464,437 153,380
============= ============ ============
NET INCOME (LOSS) CDN$ 270,989 CDN$ (81,277) CDN$ (11,912)
============= ============ ============
BASIC EARNINGS PER SHARE CDN$ 0.02 CDN$ (0.01) CDN$ NIL
============= ============ ============
AVERAGE SHARES OUTSTANDING - BASIC 11,950,243 11,033,532 11,033,532
============= ============ ============
FULLY DILUTED EARNINGS PER SHARE CDN$ 0.02 CDN$ (0.01) CDN$ NIL
============= ============ ============
AVERAGE SHARES OUTSTANDING -
FULLY DILUTED 16,022,711 11,033,532 11,033,532
============= ============ ============
NUMBER OF COMMON SHAREHOLDERS 1,123 2 2
============= ============ ============
</TABLE>
F-4
<PAGE> 59
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
CONSOLIDATED STATEMENT OF REVENUE AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUE
Sales CDN$ 588,824 CDN$ 383,154 CDN$ 141,478
Sale of computer software (Note 11) 1,950,000 - -
--------- ------- -------
CDN$2,538,824 CDN$ 383,154 CDN$ 141,478
============= ============= =============
GENERAL AND ADMINISTRATIVE
Consulting fees CDN$ 470,453 CDN$ - CDN$ -
Wages and benefits 325,187 53,734 -
Bad debts 99,727 - -
Professional fees 98,495 4,110 6,500
Investor relation fees 40,000 - -
Office and general 35,328 11,275 2,635
Rent 18,596 8,391 -
Interest and bank charges 12,806 1,102 210
Telephone and communications 10,445 4,669 4,318
Insurance 10,205 - -
Transfer agent fees 9,103 - -
Management fees - 20,351 -
Amortization of publishing
rights 9,279 - -
Amortization of deferred
development costs 37,183 - -
Amortization of goodwill 12,102 - -
Amortization of capital assets 66,109 7,841 -
------- ------- -------
CDN$1,255,081 CDN$ 111,473 CDN$ 13,663
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SALES AND MARKETING
Advertising and promotion CDN$ 218,059 CDN$ 11,348 CDN$ 8,477
Marketing fees 166,092 7,032 -
Travel and convention 137,207 - -
Meals and entertainment 64,070 10,930 348
Trade shows 44,410 41,683 2,244
Commissions 40,083 -
-
Royalties 20,275 12,258 7,833
------- ------- -------
CDN$ 690,196 CDN$ 83,251 CDN$ 18,902
============= ============= =============
</TABLE>
F-5
<PAGE> 60
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) CDN$ 270,989 CDN$ (81,277)
Adjustment for non-cash items:
Amortization of capital assets 66,109 7,841
Amortization of publishing rights 9,279 -
Amortization of deferred development
costs 37,183 -
Amortization of goodwill 12,102 -
-------- -------
395,662 (73,436)
Changes in non-cash operating assets
and liabilities (Note 9) (725,713) (51,595)
-------- -------
CASH EXPENDED IN OPERATING ACTIVITIES (330,051) (125,031)
-------- --------
INVESTING ACTIVITIES
Purchase of publishing rights (111,350) -
Purchase of goodwill (484,063) -
Increase in deferred development costs (391,438) (48,378)
Purchase of capital assets (687,515) (37,065)
-------- -------
CASH EXPENDED IN INVESTING ACTIVITIES (1,674,366) (85,443)
---------- -------
FINANCING ACTIVITIES
Increase in long term debt 262,706 -
Decrease (increase) in loans receivable (175,000) 16,069
Decrease in loans payable - (3,750)
Increase in capital stock 2,847,335 -
Increase (decrease) in advances from related
companies (221,335) 213,502
-------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 2,713,706 225,821
--------- -------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET CHANGE IN CASH AND CASH
EQUIVALENTS 709,289 15,347
CASH AND CASH EQUIVALENTS, Beginning
of year 15,882 535
------ ------
CASH AND CASH EQUIVALENTS, End of year CDN$ 725,171 CDN$ 15,882
============= ==============
CASH AND CASH EQUIVALENTS
REPRESENTED BY:
Cash CDN$ 108,376 CDN$ 15,882
Term deposit 616,795 -
------- ------
CDN$ 725,171 CDN$ 15,882
============= ==============
</TABLE>
F-6
<PAGE> 61
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
DEFICIT, Beginning of year CDN$ (93,189) CDN$ (11,912)
NET INCOME (LOSS) 270,989 (81,277)
------------- -------------
RETAINED EARNINGS (DEFICIT), End of year CDN$ 177,800 CDN$ (93,189)
============= =============
</TABLE>
F-7
<PAGE> 62
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles. These principles are also generally
accepted in the United States in all material respects except as noted in Note
12.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lasermedia
Communications Corp. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated on
consolidation.
INVENTORY
Inventory is valued at the lower of cost or net realizable value with
cost being determined on a first-in, first-out basis.
CAPITAL ASSETS
The Company records capital assets at cost, net of investment tax
credits. Amortization rates are calculated to write off the assets
over their estimated useful life as follows:
Equipment - 20% declining balance
Computer hardware - 30% declining balance
Automobile - 30% declining balance
Furniture and fixtures - 20% declining balance
Computer software - 100% straight-line
Leasehold Improvements - straight-line over 5 years
DEFERRED DEVELOPMENT COSTS
Certain software development costs are capitalized once technical
feasibility has been established for the product and recovery of such
costs is reasonably assured. Such capitalized costs are amortized over
the lesser of the estimated sales potential of the product or three
years, commencing upon the release of the product to customers.
GOODWILL
Goodwill represents the excess of the cost over the identifiable net
assets on the various business acquisitions made by the Company and is
amortized on a straight-line basis over a period of twenty years, which
represents the period of expected benefit. At each balance sheet date,
management evaluates whether there has been a permanent impairment in the
value of goodwill by assessing the carrying value
F-8
<PAGE> 63
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
of goodwill against anticipated future cash flows from related operating
activities. Factors that management considers in performing this
assessment include current operating results, trends and prospects, and
in addition, demand, competition, and other economic factors.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average
number of common shares outstanding during the year.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated into Canadian dollars at exchange
rates prevailing at the balance sheet date for monetary items and at
exchange rates prevailing at the transaction date for non-monetary items.
Income and expenses are translated at average exchange rates prevailing
during the year. Exchange gains and losses are included in earnings.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 reported period. Actual results could differ from those
estimates.
PUBLISHING RIGHTS
Publishing rights are recorded at cost and are amortized over the term of
three years.
INVESTMENT TAX CREDITS
Investment tax credits are recorded as a reduction of the related expense
or the cost of the asset acquired. The benefits are recognized when the
Company has complied with the terms and conditions of the applicable tax
legislation.
INCOME TAXES
The Company follows the tax allocation method of accounting for income
taxes whereby earnings are charged with income taxes relating to reported
earnings.
Differences between such taxes and taxes currently payable are reflected
in the accounts and arise because certain items of revenue and expense
are reported in the accounts at different times than they are reported
for income tax purposes.
F-9
<PAGE> 64
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
REVENUE RECOGNITION
Revenue from packaged product sales to distributors and resellers is
recorded when related products are shipped. Provisions are recorded for
returns and bad debt.
2. BUSINESS COMBINATIONS
(a) i) These consolidated financial statements given effect to a
reverse takeover transaction using the purchase method of
accounting. These consolidated financial statements represent a
continuation of the financial statements of the legal
subsidiary, Lasermedia Inc. in accordance with generally
accepted accounting principles. Comparative information has
been provided for Lasermedia Inc.
The Company issued 11,033,532 common shares, 600,000 Series "A"
common share purchase warrants, 200,000 Series "B" common share
purchase warrants, 200,000 Series "C" common share purchase
warrants, 100,000 Series "D" common share purchase warrants,
2,866,666 Series "E" common share purchase warrants, and 258,000
Series "F" common share purchase warrants for all of the issued
and outstanding common shares and common share purchase warrants
of Lasermedia Inc.
ii) Net assets acquired at Fair Market Value
Consideration given:
125,830 common shares valued at $0.69 per share CDN$86,818
Liabilities assumed:
Osgoode Holdings Inc. as at June 27, 1997 14,220
-------
Goodwill as at June 27, 1997 CDN$101,038
===========
(b) During 1997, the Company acquired 100% of the outstanding
share capital of Verisim, Inc. ("Verisim"), a developer of strategic
internet games software. This acquisition has been accounted for
using the purchase method of accounting for business combinations.
The results of operations of Verisim have been included in the
consolidated financial statements of the Company from the initial
acquisition date of May 23, 1997.
Total consideration of CDN$300,000, consisting of deemed proceeds
of CDN$300,000 for 100,000 shares issued by the Company is allocated
to the net assets of Verisim, at fair value, at the date of
acquisition as follows:
Cash and term deposit CDN$6,659
F-10
<PAGE> 65
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
<TABLE>
<S> <C>
Accounts receivable 20,666
Investment tax credit receivable 40,686
Deferred development costs 23,608
Capital assets 594
Goodwill 216,717
-------
308,930
Current liabilities 8,930
-------
Net assets acquired CDN$300,000
===========
</TABLE>
(c) During 1997, the Company acquired 100% of the outstanding share
capital of Laserset Graphics Inc. ("Laserset"), a related company,
in the business of graphics design. The Company acquired 50% of
Laserset on October 16, 1997 and the other 50% of Laserset was
acquired on November 19, 1997. Under a statutory amalgamation,
Laserset and the Company were merged on December 31, 1997.
During 1997, the Company acquired 100% of the outstanding share
capital of Laserset Graphics, Inc. ("Laserset"), a related company,
in the business of graphics design. The Company acquired 50% of
Laserset on October 16, 1997 and the other 50% of Laserset was
acquired on November 19, 1997. Under a statutory amalgamation,
Laserset and the Company were merged on December 31, 1997. This
acquisition has been accounted for using the purchase method of
accounting for business combinations. The results of operations of
Laserset at the two acquisition dates have not been included in the
consolidated financial statements of the Company as it was deemed
to be immaterial.
Total cash consideration of CDN$200,000 is allocated to the net
assets of Laserset, at fair value, at the date of acquisition as
follows:
<TABLE>
<S> <C>
Accounts receivable CDN$180,322
Investment tax credit receivable 39,152
Capital assets 55,625
Deferred development costs 203
Goodwill 166,307
-------
441,609
Current liabilities 241,609
Net assets acquired CDN$200,000
</TABLE>
F-11
<PAGE> 66
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
3. LOAN RECEIVABLE
The loan receivable bears interest at 12% per annum, secured by a pledge of
300,000 common shares of the Company and is due September 18, 1998.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------- ----------
COST ACCUMULATED NET BOOK NET BOOK
AMORTIZATION VALUE VALUE
<S> <C> <C> <C> <C>
Equipment CDN$386,106 CDN$(264,868) CDN$121,238 CDN$5,961
Computer hardware 304,174 (49,487) 254,687 23,263
Automobile 13,074 (11,204) 1,870 -
Furniture and fixtures 81,303 (9,034) 72,269 -
Computer software 22,108 (5,380) 16,728 -
Leasehold Improvements 202,268 (18,430) 183,838 -
------------- ------------ ----------- ----------
CDN$1,009,033 CDN$(358,403) CDN$650,630 CDN$29,224
============= ============ =========== ==========
</TABLE>
5. DEFERRED DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
BALANCE, Beginning of year CDN$50,494 CDN$ --
Cost deferred during the year 528,449 119,351
Investment tax credit claimed on additions (137,011) (68,857)
Amortization during the year (37,183) --
----------- ----------
BALANCE, End of year CDN$404,749 CDN$50,494
=========== ==========
</TABLE>
F-12
<PAGE> 67
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
6. LONG TERM DEBT
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Small business loan - bears interest at prime
plus 2.5%, secured by a general security
agreement and a $30,000 term deposit, repayable
in monthly principal amounts of $4,167 and is
due August 2001. CDN$183,333 CDN$ --
Equipment loan #1 - bears interest at 22% per
annum, secured by the equipment, repayable in
blended monthly amounts of $1,029 and is due
October 1999. 18,220 --
Equipment loan #2 - bears interest at 13.6%
per annum, secured by the equipment, repayable
in blended monthly amounts of $2,089 and is due
November 2000. 61,153 --
----------- ----------
262,706 --
Less: current portion (77,808) --
----------- ----------
CDN$184,900 CDN$ --
=========== ==========
</TABLE>
Principal repayments for the next four years are as follows:
<TABLE>
<S> <C>
1998 CDN$ 77,806
1999 79,476
2000 72,091
2001 33,333
-------------
CDN$ 262,706
</TABLE>
F-13
<PAGE> 68
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
7. CAPITAL STOCK
<TABLE>
<CAPTION>
AUTHORIZED
Unlimited Common shares
2,000,000 Preference shares
ISSUED SEE NOTE NUMBER OF SHARES AMOUNT
BELOW
<S> <C> <C> <C>
Balance as at December 31, 1996 125,830 CDN$ 624,401
Upon reduction of stated capital (a) - (624,400)
Upon issued on reverse takeover (b) 11,033,532 1,861,193
Upon issued on debt settlement
agreement (c) 818,981 204,745
Upon exercise of Series "E"
purchase warrants (f) 1,000,011 750,008
Upon exercise of stock options (h) 1,000 1,250
Upon exercise of Series "E"
purchase warrants (j) 35,187 26,390
Upon exercise of stock options (k) 3,750 3,750
---------- --------------
Balance as at December 31, 1997 13,018,291 CDN$ 2,847,337
========== ==============
</TABLE>
(a) On June 27, 1997, the shareholders passed a special resolution to
reduce the stated capital of the Company attributable to the
common shares by $624,400.
(b) On June 27, 1997, the Company issued 11,033,532 common shares,
600,000 Series "A" common share purchase warrants, 200,000
Series "B" common share purchase warrants, 200,000 Series "C" common
share purchase warrants, 100,000 Series "D" common share purchase
warrants, 2,866,666 Series "E" common share purchase warrants and
258,000 Series "F" common share purchase warrants to acquire all of
the issued and outstanding securities of Lasermedia Inc.
(c) On June 27, 1997, the Company issued 818,981 common shares
pursuant to a Debt Settlement Agreement in order to satisfy certain
indebtedness in the sum of $204,745.
(d) On July 17, 1997, the Company granted 835,000 stock options
to certain directors, officers, employees and consultants of the
Company. These options are exercisable at prices varying from
CDN$0.90 to CDN$1.75 per common share and expire on either July 16,
1999 or July 16, 2000.
(e) On August 13, 1997, the Company granted 4,000 stock options
to certain employees of the Company. These options are exercisable
at CDN$1.25 per common share on or before August 12, 1999.
(f) On August 14, 1997, the Company issued 1,000,011 common
shares upon exercising of Series "E" purchase warrants for
consideration of $750,008.
F-14
<PAGE> 69
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
(g) On September 24, 1997, the Company granted 20,000 stock options
to Aludra Software Inc. as part of the distribution rights
purchase. These options are exercisable at $1.60 per common share
on or before September 23, 1999.
(h) On October 16, 1997, the Company issued 1,000 common shares
upon exercising of stock options for consideration of CDN$1,250.
(i) On October 23, 1997, the Company granted 15,000 stock options
to a consultant of the Company. These options are exercisable at
CDN$1.60 and CDN$1.75 per common share on or before October 22,
1999.
(j) On November 27, 1997, the Company issued 35,187 common shares
upon exercising of Series "E" purchase warrants for consideration of
CDN$26,390.
(k) On December 3, 1997, the Company issued 3,750 common shares
upon exercising of stock options for consideration of CDN$3,750.
(l) On December 8, 1998, the Company granted 10,000 stock options
to a director of the Company. These options are exercisable at
CDN$1.00 per common share on or before December 7, 1999.
STOCK OPTION PLAN
The Company has approved a stock option plan (the "Plan") for directors,
officers, employees, consultants and advisors of Lasermedia
Communications Corp., it subsidiaries and affiliates. The purpose of the
plan is to attract, retain and motivate management and staff by providing
them with the opportunity, through share options, to acquire a
proprietary interest in the Company and to benefit from its growth. The
Plan provides that the number of common shares under option at any one
time will not exceed 2,000,000 shares. No single individual may hold
options in respect of more than 5% of the issued and outstanding common
shares. At December 31, 1997, there were options for 217,000 shares
which were vested. Stock options for employees are exercisable on the
basis of continuing employment. Options given in a year are exercisable
to the extent of 25% for every three months of employment from the date
of grant.
The outstanding stock options and purchase warrants are as follows:
F-15
<PAGE> 70
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
EXPIRY DATE SEE NOTE PRICE 1997 1996
ABOVE $ # #
STOCK OPTIONS
<S> <C> <C> <C> <C>
July 16, 1999/July 16, 2000 (d) CDN$0.90 - CDN$1.75 834,000 -
August 12, 1999 (e) 1.25 4,000 -
September 23, 1999 (g) 1.60 20,000 -
October 22, 1999 (i) 1.60 - 2.00 15,000 -
December 7, 1999 (l) 1.00 10,000
--------- ----
883,000
========= ====
PURCHASE WARRANTS
March 31, 2002 (b), (f), (j) CDN$0.75 - CDN$1.50 3,189,468 -
========= ====
</TABLE>
8. STATEMENT OF CHANGES IN FINANCIAL POSITION
CHANGES IN NON-CASH OPERATING ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
(Increase) decrease in accounts receivable CDN$ (538,714) CDN$ 65,010
Increase in investment tax credit receivable (273,157) (84,065)
Increase in inventory (76,018) (6,394)
(Increase) decrease in prepaid expenses and
sundry assets (167,534) 9,857
Increase (decrease) in accounts payable and
accrued liabilities 329,710 (36,003)
-------------- -------------
CDN$ (725,713) CDN$ (51,595)
============== =============
</TABLE>
9. INCOME TAXES
The Company and its subsidiaries have non-capital losses of $755,314 which
may be available to offset future income for tax purposes. The potential
tax benefits have been reflected in these financial statements only to the
extent of $647,764 of non-capital losses which have reduced the
accumulated deferred income tax credits which would have otherwise been
reflected in these financial statements. The losses will expire as
follows:
F-16
<PAGE> 71
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
================================================================================
1998 CDN$ 21,508
1999 69,101
2000 15,403
2001 13,768
2002 86,205
2003 284,356
2004 264,973
------------
CDN$755,314
============
10. SUBSEQUENT EVENTS
(a) In January 1998, the Company granted 150,000 stock options to
certain employees and consultants of the Company. These options are
exercisable at CDN$0.90 per common share on or before January 2000.
(b) In February 1998, the Company granted 4,500 stock options to
a certain employee of the Company. These options are exercisable at
CDN$1.00 per common share on or before February 2000.
(c) In March 1998, the Company issued 100,000 common shares upon
exercising of Series "A" purchase warrants for consideration of
CDN$50,000.
(d) In April 1998, the Company issued 87,374 common shares upon
exercising of Series "E" purchase warrants for consideration of
CDN$65,531.
(e) In April 1998, the Company issued 13,125 common shares upon
exercising stock options for consideration of CDN$13,594.
11. COMMITMENTS
(a) Supply and Reseller Agreement
Pursuant to a supply and reseller agreement dated June 27, 1997,
Lasermedia Inc., a subsidiary of the Company, has agreed to
purchase a minimum of CDN$500,000 of software products from the
purchaser of its "Active Trainer" family of software during the
year ended December 31, 1998.
F-17
<PAGE> 72
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
================================================================================
(b) Lease commitments
The Company rents premises under various operating leases which
expire at various dates up to 2002. The annual minimum lease
payments under these leases for each of the next five years are as
follows:
1998 CDN$ 83,350
1999 91,553
2000 96,937
2001 95,484
2002 31,667
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATED
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada ("Canadian GAAP") which, in the
case of these financial statements, conform in all material respects with
those in the United States ("U.S. GAAP"), except as follows:
<TABLE>
<CAPTION>
(A) Adjustments to Earnings 1997 1996
<S> <C> <C>
Net income (loss) in accordance with Canadian GAAP CDN$ 270,989 CDN$ (81,277)
Less: deferred development costs1 354,255 50,494
compensation expense4 62,938 -
Add: amortization of goodwill on reverse-takeover
acquisition 2,526 -
--------------- ---------------
Net income (loss) in accordance with U.S. GAAP CDN$ (143,678) CDN$ (131,771)
=============== ===============
Weighted average number of common shares under
BASIC EPS3 11,950,243 11,033,532
=============== ===============
BASIC earnings (loss) per share in accordance with
U.S. GAAP3 CDN$ (0.01) CDN$ (0.01)
=============== ===============
Weighted average number of common shares and their
equivalents under the treasury stock method3 13,418,742 11,033,532
=============== ===============
</TABLE>
F-18
<PAGE> 73
LASERMEDIA COMMUNICATIONS CORP.
(FORMERLY OSGOODE HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
<TABLE>
<CAPTION>
================================================================================
1997 1996
<S> <C> <C>
Diluted earnings (loss) per share in accordance
with U.S. GAAP3 CDN$ (0.01) CDN$ (0.01)
=============== ===============
(B) Adjustments to Assets and Shareholders' Equity
(i) Total assets in accordance with Canadian GAAP CDN$ 3,717,915 CDN$ 228,510
Less: deferred development costs1 404,749 50,494
goodwill on reverse-takeover acquisition5 101,038 -
--------------- ---------------
Total assets in accordance with U.S. GAAP CDN$ 3,212,128 CDN$ 178,016
=============== ===============
(ii) Total shareholders' equity in accordance with
Canadian GAAP CDN$ 3,025,137 CDN$ (93,187)
Less: deferred development costs1 354,255 50,494
Add: amortization of goodwill on reverse-takeover
acquisition5 2,526 -
--------------- ---------------
Total shareholders' equity in accordance
with U.S. GAAP CDN$ 2,673,408 CDN$ (143,681)
=============== ===============
(C) Adjustments to Cash Flows
Cash expended in investing activities in
accordance with Canadian GAAP CDN$ (1,674,366) CDN$ (85,433)
Less: deferred development costs1 354,255 50,494
Add: goodwill on reverse-takeover acquisition5 101,038 -
--------------- ---------------
Cash expended in investing activities in accordance
with U.S. GAAP CDN$ (1,927,583) CDN$ (135,927)
=============== ===============
</TABLE>
1 Deferred development costs, which are capitalized under Canadian
GAAP, are expensed under U.S. GAAP.
2 Under U.S. GAAP, in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income
Taxes, income taxes are accounted for using the liability method.
Under the liability method, deferred tax assets and liabilities are
recognized for temporary differences between the financial statement
carrying amounts and the tax basis amounts
F-19
<PAGE> 74
of the respective assets and liabilities at the enacted tax rates.
Such differences arise from the differences in the timing of income
and expense recognition. Under Canadian GAAP, income taxes are
accounted for using the deferral method whereby the differences
between the tax and accounting basis of the Company's assets and
liabilities are measured at the tax rate in effect when the
difference arises. In addition, deferred tax assets are recognized
for loss carryforwards if it is virtually certain that the benefit
will be realized.
3 Under U.S. GAAP, in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share, the
Company is required to disclose basic earnings per share which is
based on the weighted average aggregate number of common shares
outstanding during each year and diluted earnings per share which is
based on the weighted average aggregate number of common shares and
their equivalents outstanding during each year, using the "treasury
stock method" for the outstanding stock options and warrants. SFAS
No. 128 is effective for financial statements issued for periods
ending after December 15, 1997.
4 Under U.S. GAAP, in accordance with Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock
Based Compensation, the Company is required to either disclose or
recognize stock based compensation costs using the fair market value
method. Under Canadian GAAP, the fair market value of stock based
compensation costs, using either the intrinsic or fair value
methods, is not recognized or disclosed in the financial statement.
5 Under U.S. GAAP, there is no recognition of goodwill under a
reverse-takeover acquisition. Under Canadian GAAP, goodwill can be
recognized under a reverse-takeover transaction.
F-20
<PAGE> 75
LASERMEDIA COMMUNICATIONS CORP.
RECONCILIATION TO U.S. GAAP
ITEM 19(A). FINANCIAL STATEMENTS AND EXHIBITS
For a list of all financial statements filed as part of this annual report
please see Index to Financial Statements Data under Item 18.
ITEM 19(B). EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1. Letter of Intent between Company and TRC Fitness Inc., dated May [___],
1998.
47
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Lasermedia Communications Corp. 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.
Lasermedia Communications Corp.
11 Charlotte Street
Toronto, Ontario M5V 2H5
Canada
Date: June 30, 1998 /s/ Robert Brian Gibson
------------------------
Robert Brian Gibson
Chief Operating Officer,
Chief Financial Officer
49
<PAGE> 77
Exhibit 1
Letter of Intent between the Company and TRC Fitness Inc.,
dated May [ ], 1998
1-1
<PAGE> 1
LETTER OF INTENT
1. Distributorship - "Active" line of products: TRC Fitness will have the
right to sell and distribute the complete "Active" line of products to
Canadian mass merchants, department stores, fitness stores, sporting goods
stores, health food stores, bike shops, running rooms and all TV media.
TRC Fitness will have exclusive Canadian distribution rights of the
"Active" line of products for 90 days commencing the date a final contract
is signed.
2. Exclusive Distributorship - Body Break & Reebok OEM products: TRC
Fitness will have the exclusive right to sell all Body Break & Reebok OEM
products to all Canadian and International markets. Through this
arrangement TRC Fitness will control the rights of the products.
3. Purchase of Product - "Active" line of products: TRC Fitness shall
purchase all products directly from LaserMedia. TRC Fitness shall be
responsible for payment of duties, taxes and other related charnges. TRC
Fitness will receive all products at a cost that allows for a 30% margin
for TRC Fitness and a 40% margin for all retailers.
4. Purchase of Products - Body Break and Reebok OEM products: LaserMedia
will supply all Body Break and Reebok OEM products to TRC Fitness at
absorbed manufacturing costs.
5. Development Costs - "Active" line of products: Lasermedia will be
responsible for all development/product modification costs associated with
the "Active" line of products.
6. Development Costs - Body Break and Reebok OEM products: TRC Fitness will
be responsible for all development/product modification costs associated
with the Body Break and Reebok OEM products.
7. Marketing - "Active" line of products: Lasermedia will be responsible
for all marketing costs for the "Active" product line. These costs
include, but are not limited to, advertising, promotions, trade shows,
coupons, direct mail, product seeding, etc. TRC Fitness will be
responsible for all sales costs including co-op advertising, in-store
promotions, listing fees and vendor agreement costs.
8. Marketing - Body Break and Reebok OEM products: TRC Fitness will be
responsible for all marketing and sales costs of Body Break and Reebok OEM
products.
9. Terms of Agreement: The Distributorship Agreement will have an initial
term of two years. The agreement will be automatically renewed every two
years as long as performance levels are met by TRC Fitness.
10. Performance: Distributorship Agreement shall remain in effect and will
automatically be renewed provided sales levels are maintained. No
performance criteria will be established for Body Break and Reebok OEM
products. Performance criteria based on unit sales will be developed for
the "Active" line of products.
11. Sales Incentives: LaserMedia will be responsible for the payment of all
sales incentives for the "Active" product line to TRC Fitness employees.
This letter of intent is valid for 30 days, in this time period a final
contract must be signed or the letter of intent become void.
/s/ Tony Caparotta May 7, 1998
- -------------------- -----------
Tony Caparotta Date
/s/ Brian Gibson May 7, 1998
- -------------------- -----------
Brian Gibson Date
