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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
- , 1999
REGISTRATION NO. 000-23785
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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Annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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)
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Securities registered or to be registered pursuant to Section
12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: NONE
Number of outstanding shares of the issuer's common stock as of
December 31, 1999:
14,607,054 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 .................................. 3
PART I
Item 1. DESCRIPTION OF BUSINESS ...................................... 4
Item 2. DESCRIPTION OF PROPERTY ...................................... 13
Item 3. LEGAL PROCEEDINGS ............................................ 13
Item 4. CONTROL OF REGISTRANT ........................................ 14
Item 5. NATURE OF TRADING MARKET ..................................... 14
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS ......................................... 15
Item 7. TAXATION ..................................................... 16
Item 8. SELECTED FINANCIAL DATA ...................................... 18
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................ 19
Item 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ... 23
Item 10. DIRECTORS AND EXECUTIVE OFFICERS ............................. 23
Item 11. EXECUTIVE COMPENSATION ....................................... 24
Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
OR SUBSIDIARIES ........................................... 26
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS ............... 29
PART II
Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED ................... 30
PART III
Item 15. DEFAULTS UPON SENIOR SECURITIES .............................. 30
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Item 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR
REGISTERED SECURITIES AND USE OF PROCEEDS ............... 30
PART IV
Item 17. FINANCIAL STATEMENTS ........................................ 30
Item 18. FINANCIAL STATEMENTS ........................................ 30
Item 19 FINANCIAL STATEMENTS AND EXHIBITS ........................... 30
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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 10-13. 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 28th, 1999 the noon buying rate was CDN$1.00 = U.S.$0.6863
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FISCAL YEAR ENDED AVERAGE HIGH LOW CLOSE
----------------- ------- ---- --- -----
<S> <C> <C> <C> <C>
12/31/98 $0.6741 0.7060 0.6484 0.6522
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
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
LaserMedia Communications Corp. ("LaserMedia" or the "Company") has
experienced a series of dramatic changes in its business and management since
its inception in 1964. The Company has evolved from its' original business of
mineral exploration to the field of Internet marketing and e-commerce.
LaserMedia has now replaced its previous management with leaders in information
technology and developed a virtual health and fitness centre on the Internet.
At the end of 1997, LaserMedia was comprised of four specialized groups:
Multimedia Software (development, marketing and sales of CD ROM products),
Multimedia Studio (graphic design), On-line Games (development of Internet
applications) and Health and Fitness On-Line (customer service for CD ROM
products and development of new on-line multimedia products).
By the end of 1998, the Company had been restructured and reorganized. The
activities of Multimedia Studio and On-line Games had ceased, and the remaining
two groups, Multimedia Software and Health and Fitness On-line, were
consolidated. The Company is now focused on becoming a specialized, interactive
health and fitness Internet web site B a central clearinghouse of authoritative
information, consumer products and customized services as well as on-line
shopping.
To identify itself with its major business activity and its proprietary website,
the Company has taken the requisite regulatory and shareholder proceedings to
change its name to "ACTFIT.COM INC."
GENERAL INFORMATION
The headquarters and registered office of the Company are located in Canada at
11 Charlotte Street, Toronto, Ontario M5V 2H5. Its telephone number is (416)
977-2001. Inquiries should be directed to Samuel C. Paul, the Company's Chief
Financial 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.
CORPORATE MIGRATION TO STATE OF DELAWARE, UNITED STATES OF AMERICA
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The Company is incorporated under the BUSINESS CORPORATIONS ACT (Ontario)
Canada. Management has proposed to its shareholders to discontinue the Company
under the laws of Ontario, and continue the Company under the laws of the State
of Delaware. Management believes that by moving the Company's corporate domicile
from Ontario to Delaware, this will facilitate the qualification of its
securities under various American laws and future financings.
The Board of Directors are of the view that the move of corporate domicile would
not deprive a shareholder of any right or privilege that he currently holds as a
shareholder. If the special resolution authorizing the continuance of the
Company under the laws of the State of Delaware does not receive the requisite
approval at the annual shareholders' meeting, the Company will remain an Ontario
corporation
BRIEF HISTORY
The Company was incorporated under the BUSINESS CORPORATIONS ACT (Ontario,
Canada) on April 20, 1964 under the name Benvan Mines Limited and its original
business was mineral exploration. Commencing the mid-1970's the Company changed
its name and business focus on several occasions; on July 10, 1975 its name was
changed to Howie Controls (Canada) Limited, on December 9, 1982 to Benvan
Holdings, Inc., and on December 27, 1991 to Osgoode Holdings Inc. Under the
latter two names the Company operated as a holding company and did not carry on
any active business.
On June 27, 1997, the name of the Company was changed to Lasermedia
Communications Corp. as part of a transaction in which the Company acquired all
the issued and outstanding securities of Lasermedia Inc. Lasermedia Inc.'s
principal business was the production and distribution of multimedia interactive
consumer software products in the entertainment, home education and personal
fitness categories. The securities issued by the Company in exchange for the
issued and outstanding securities of Lasermedia Inc. were valued at CDN
$8,300,000. The value of the Company was determined by an unaffiliated business
valuation and litigation support company. The Company, at that time had one
other wholly owned subsidiary, Verisim, Inc., which developed Internet software.
In 1997 the Company determined the need to move its business activities away
from diffuse and divergent multimedia activities toward the more focused core
business of the delivery of health and fitness information via interactive
electronic media and made a series of acquisitions. It also started the
development of virtual reality products and services.
In fourth quarter of 1998 the Company announced its intention to launch
"actfit.com", a website which the Company believed would be the first virtual
health and fitness club, incorporating a level of graphic realism and
interactivity on the Internet. Actfit.com was launched two months later, in
January 1999. It is
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anticipated that the shareholders of the Company will approve the proposed
amendment to the Company's corporate name to ACTFIT.COM INC. at the next
annual meeting of shareholders.
THE MARKET
Health and fitness is a fractured market in a rapidly growing area of
consumer interest. It is reported to be a $80 billion market consisting of
more than seventeen million enthusiasts in the United States alone. There are
tens of thousands of suppliers to serve them. It is a market that lends
itself to consolidation, as organizations seek acquisition, merger,
co-branding and cross-promotional opportunities. The Company believes it is a
market with no single dominant brand.
The Company hopes to make "actfit.com" become the dominant brand by being the
leading entry point on the Internet for health and fitness information, product
and services.
ACTFIT.COM
The Company seeks to market "actfit.com" as the first vertical portal serving
the worldwide health and fitness market, a specialized market reportedly worth
more than $80 billion in the American market alone. Management's goal is to
position the "actfit.com" brand as the most authoritative source of health and
fitness information and interactive content, products and services on the world
wide web. The Company intends to provide advertisers and sponsors unique
co-branding and cross-promotional opportunities by inviting their targeted
consumers to experience a level of realism and interactivity uniquely to be
found at "actfit.com."
The website was launched in January 1999, and experienced one million page views
per month by the end of the first quarter of operation. It experienced two
million page views by the end of May 1999.
As the number of page views continues to climb, the potential value of
advertising and sponsorship opportunities offered on "actfit.com" increases. To
further the Company's goals, it has been negotiating alliances with health,
fitness and sport web sites and publications around the world. this network
strategy has the potential of substantially increasing the number of page views,
as well increasing the Company's exposure on the Internet and conventional media
outlets. The "actfit.com" website sells advertising on behalf of its network
members and shares in these revenues.
The actfit.com website integrates innovative, interactive content in a
media-rich environment including such features as 3-D graphics, chat rooms,
online training advice, weekly fitness e-zine, workout generators,
brand-extending free email @actfit.com, full-motion video exercise
demonstrations, full-motion video celebrity workouts and dynamic database of
authoritative health and fitness information.
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INTERACTIVE CONTENT & APPLICATIONS
The Company has made a commitment to develop the Internet technology expected to
emerge from the deployment of broadband networks. As an early entrant in this
medium, the Company expects to gain unique expertise in this field and
developing new techniques and applications. The Company through its "actfit.com"
website will also maintain a low-bandwidth presence on the Internet. Consumers
using a modem on a regular telephone line can access "actfit.com's" content,
advertisers and sponsors through our weekly electronic magazine, Fitweek.
The Company will seek a competitive advantage as an early entrant in the
broadband spectrum with the "actfit.com" site. The Company believes it can
develop and produce interactive advertising models which are effective and
informative alternatives to the static banner advertising and annoying pop-up
ads currently being offered on the Internet. It is currently testing prototypes
of interactive advertising media that can be accessed by consumers with modems
and regular phone lines as well as high speed Internet connections.
The media-rich virtual environments of actfit.com were developed and produced
using flash technology, the same technology that Microsoft's Web TV uses for
interactive television. Actfit.com is one of the first websites that can create
interactive Internet advertising that can be converted to interactive
television. With this pioneering expertise, "actfit.com" will be competitively
positioned to offer its clients and associates an opportunity to be among the
first to offer advertising content which will appear on interactive television,
considered to be the future evolution of all television advertising.
BRAND MANAGEMENT & THE DEVELOPMENT OF THE ACTFIT.COM FRANCHISE
By building a highly-visible brand and establishing a solid credibility in a
focused market, the Company looks to expand its business interests to include
other potentially profitable activities which could be operated as proprietary
ventures or licensed and managed by third parties.
The Company may look to offer for sale such products and services as: apparel,
vitamins and supplements, books, videotapes, CD ROMS, DVD ROMS and television
programming as well as provide the management of health and fitness events such
as competitions, conferences, trade shows, lecture series and on-line travel
services offering specialized fitness packages.
All of these initiatives introduce new sponsorship, advertising and product
placement opportunities for our media-buying customers that could lead to many
unique co-branding and cross-promotional vehicles.
POTENTIAL SOURCES OF REVENUE
The Company will seek to generate revenues from the following sources:
- - media sales of advertising space;
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- - fees for the production of interactive advertising;
- - sponsorship fees for Actfit.com rooms, features and web-cast events;
- - transaction fees and commissions from Pro Shop product sales;
- - sales of CD ROM, DVD ROM and downloadable products under the
"actfit.com" brand;
- - memberships fees for customized services; subscription fees to
pay-per-view events;
- - web hosting and site management fees from health and fitness
organizations and publications;
- - commission and/or share of advertising revenue from media sales on
hosted sites; and
- - sales of research data and analysis of consumer information and trends
for the health and fitness industry.
GROWTH STRATEGY
The Company has adopted an incremental growth strategy to be achieved through:
- - Exploitation of proprietary intellectual properties through retail
distribution, e-commerce and the re-purposing of content;
- - Authoring of proprietary content and acquisition of exclusive rights to
authoritative content on a wide range of health and fitness subjects;
- - Development of interactive multimedia alternatives to static banner
advertising;
- - Marketing of product placement opportunities on the Internet, only
possible with a high-quality graphic interface and interactivity;
- - Alliances with health, fitness and sports web sites to increase
Internet traffic and value of media space;
- - Linkages with manufacturers, distributors and service providers in the
health and fitness industry;
- - Exclusive associations with high-profile health and fitness experts,
authors, practitioners and celebrities;
- - Data gathering and analysis of consumer information and trends for the
health and fitness industry;
- - Publicity and promotions;
- - Co-branding and cross-promotions with our partners and associates;
- - Highly-targeted multi-channel marketing via the Internet and
conventional media;
- - Cooperative advertising with our partners, associates and advertisers
on advertising;
- - Creation of a highly-focused virtual community of consumers,
suppliers, service providers accessible at a single Internet address;
and
- - Development and marketing of proprietary technology for creative and
maintaining interactive multimedia web sites for broadband networks and
interactive television.
COMPETITION
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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 can compete effectively in these areas but there is no assurance that it will
be able to do so successfully.
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 or be able to protect the interests of the
Company.
In June, 1997 the Company received a letter from Lasermedia Inc. of Los Angeles,
California which requested that the Company cease and desist using the domain
name "Lasermedia" on the Internet. In direct response to this request, the
Company has taken steps to change its name to "Actfit.com Inc." and use the
domain name "Actfit.com". It is believed that this amendment will resolve any
issues between the Company and Lasermedia Inc.
RESEARCH AND DEVELOPMENT
The Company has focused on developing "virtual reality products" in the years
prior to 1999, including the Active VR and the Virtual Health Club products.
The last fiscal year saw the successful launch of the Company's website at
www.actfit.com; a comprehensive interactive health and fitness website.
The Company plans to focus its research and development efforts on expansion of
this website and building alliances to exploit this website to the fullest.
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
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At May 31, 1999, the Company employed 28 individuals.
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. The website operates
twenty-four hours a day, seven days a week; however the Company has not yet
experienced a full operating year to determine if there are trends in the market
place. 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:
a) Limited history of operations and profitability
The Company has a limited operating history and is presently
unprofitable. The Company's prospects must be 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 website development. 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 or ever become profitable.
b) 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 information, consumer products and/or customized
services. The Company's ability to develop new products, research and
development activities, the emergence of new industry standards, the
timing of customer orders, the mix of information and services
available, 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 has not experienced significant effects of seasonality to
date; however, the operating results of many information technology
companies reflect 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.
c) Rapid technology change
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The information technology 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 toward multimedia. 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 industry
in a timely manner, this inability could have a material adverse effect
on the Company's operations.
d) Risks associated with new product/services development &
timely introduction of new and enhanced products/services
The Company's future success will depend to a substantial degree upon
its ability to enhance its existing products and services and to
develop and introduce, on a timely and cost-effective basis, new
products, services 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 uncertain process requiring high
levels of innovation, as well as accurate anticipation of technological
and market trends.
There can be no assurance that the Company will successfully develop,
introduce or manage the transition to new products and services. 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 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.
e) 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 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.
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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.
f) 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.
g) 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 and services 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
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the Company will not distribute its multimedia products in the future
to countries where the enforcement of proprietary rights may be
uncertain.
h) Dividends
It is the current policy of the Company's management to retain any
earnings to finance the operations and expansion of the Company's
business and payment of dividends on the common shares is unlikely in
the foreseeable future.
i) 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 in Canada on the Canadian Dealer Network on the
over-the-counter market and in the United States on the NASDAQ,
bulletin board. The public float is approximately 3,000,000 common
shares. Broad market fluctuations may materially adversely affect the
market price of the common shares.
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. The
Company pays rent of $85,000 per annum for such facility.
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.
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 has responded directly
to this claim by taking steps to change the Company name to "actfit.com inc."
and use the domain "actfit.com".
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ITEM 4. CONTROL OF REGISTRANT
As of June 30, 1999, there are no stockholders known by the Company to be
beneficial owners of more than 10% of the outstanding common stock of the
Company.
All of the Company's officers and directors, taken as a group (three persons),
own less than 1% of the Company's outstanding common stock as of June 30, 1999.
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.
ITEM 5. NATURE OF TRADING MARKET
On August 14, 1997 the common shares of the Company commenced trading and
quotation on the Canadian Dealing Network Inc. ("CDN"), the over-the-counter
market in Ontario, under the trading symbol "LMCD". On Oct 20, 1998 the common
shares of the Company also began trading on the NASDAQ "bulletin board" market
under the trading symbol "LZMCF".
The following table presents the high and low trading values per quarter
of the common stock of the Company (in Canadian dollars) from the date the
Company's common shares commenced trading through June 30, 1999:
TRADING MARKET TABLE
CANADIAN STOCK TRADING ANALYSIS
(IN CANADIAN DOLLARS)
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FISCAL
QUARTER HIGH LOW
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August 14 - September 30, 1997 $ 1.70 $ 1.45
October 1 - December 31, 1997 $ 1.75 $ 0.80
January 1 - March 31, 1998 $ 1.85 $ 0.75
April 1 - June 30, 1998 $ 2.05 $ 0.45
July 1 - September 30, 1998 $ 0.55 $ 0.25
October 1 - December 31, 1998 $ 0.40 $ 0.10
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January 1 - March 31, 1999 $ 0.85 $ 0.10
April 1 - June 30, 1999 $ 2.22 $ 0.47
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U.S. STOCK TRADING ANALYSIS (Since Trading Commenced)
(IN U.S. DOLLARS)
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FISCAL
QUARTER HIGH LOW
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October 20 - December 31, 1998 $0.28 $0.05
January 1 - March 31, 1999 $0.75 $0.07
April 1 - June 30, 1999 $1.52 $0.30
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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 there are a substantial number of shareholders who are
residents of the United States.
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.
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
<PAGE>
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.
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)
<PAGE>
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 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.
DIVIDENDS
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.
<PAGE>
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 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.
ITEM 8. SELECTED FINANCIAL DATA
The following tables provide a summary of certain financial information for
fiscal years 1998, 1997, 1996 and 1995. Such selected financial data 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"). 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".
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Revenue $584,487 $2,538,824 $383,154 $141,478
-------- ---------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Cost of revenue 356,487 322,621 269,707 120,825
General and administrative 2,263,285 1,255,018 111,473 13,663
Sales and marketing 1,251,867 690,196 83,251 18,902
----------- ---------- ---------- ----------
3,871,639 2,267,835 464,431 153,380
OPERATING INCOME (LOSS) BEFORE
UNDERNOTED ITEMS (3,287,379) 270,989 (81,277) (11,912)
UNDERNOTED ITEMS
Write-off of publishing rights 102,071 - - -
Write-off of goodwill 373,448 - - -
Write-off of deferred development costs 69,196 - - -
----------- ---------- ---------- ----------
544,715 - - -
----------- ---------- ---------- ----------
NET INCOME (LOSS) $(3,832,094) $ 270,989 (81,277) (11,912)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
BASIC EARNINGS PER SHARE $ (0.29) $ 0.02 (0.01) Nil
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
AVERAGE SHARES OUTSTANDING - BASIC 13,278,649 11,950,243 11,033,532 11,033,532
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE $ (0.22) $ 0.02 $ (0.01) Nil
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
AVERAGE SHARES OUTSTANDING - FULLY DILUTED 17,050,618 16,022,711 11,033,532 11,033,532
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
OPERATING RESULTS FOR THE COMPANY
At the end of Fiscal Year 1997, the Company was comprised of four specialized
groups: Multimedia Software (development, marketing and sales of CD ROM
products), Multimedia Studio (graphic design), On-line Games (development of
Internet applications) and Health and Fitness On-Line (customer service for CD
ROM products and development of new on-line multimedia products).
By the end of Fiscal Year 1998, the Company had been restructured and
reorganized. The activities of Multimedia Studio and On-line Games had ceased,
and the remaining two groups, Multimedia Software and Health and Fitness
On-line, were consolidated and focused on the health and fitness market.
RESULTS OF OPERATIONS FOR 1998
<PAGE>
At the onset of fiscal year 1998, the Company's major activity was the
production, acquisition and publication of interactive health and fitness
multimedia software on CD ROM. The Company was also developing interactive
multi-player strategic on-line games and virtual experiences with health and
fitness and other themes, intended to provide an entry point into diverse
markets. The health and fitness on-line group was involved in the development of
a multimedia web site, a brand extension of its proprietary CD ROM product line,
Active Trainer, that would provide consumers with health and fitness
information, products and customized services via the Internet.
Over the course of 1998, substantial development costs and overhead were
incurred by the on-line group. Despite this substantial investment, the
availability of a marketable product appeared unlikely for some time. As the
technology was being developed to create products and services for consumers
outside of the Company's target market of health and fitness, management decided
to cease further development of these applications. The software codes and
engines remain proprietary to the Company and may have future marketability.
As the Company approached the third quarter of operations it became apparent
that its year-end sales projections of CD ROM products would not be met. This
was due to unforeseen demands from distributors and retailers to agree to
unreasonable return policies and payment of new marketing fees to secure shelf
space.
With sales prospects and profit margins compromised by the emergence of a
competitive retail environment for interactive products, management stepped
up plans to explore and create new sales channels. CD ROM products were
shipped to health and fitness clubs and specialized retailers. The Company
also accelerated plans to distribute products and services via the Internet.
The Company's focus turned away from the development of new CD ROM products and
on-line games and towards the creation of an interactive web site from which it
could promote and market proprietary and third-party products and services while
generating revenue from the sales of advertising. In addition, the web site
would provide the Company with an opportunity to create brand extending on-line
versions of its active trainer products through the repurposing of these
intellectual properties, thus reducing its reliance on traditional sales
channels.
On October 22, 1998, President Erik Schannen resigned as both an officer and
director of the Company in order to facilitate its movement away from research
and product development, which was Mr. Schannen's area of expertise and
professional interest. In order to meet its objective of becoming a successful
Internet-based media company serving the health and fitness market, the Company
named Mr. Richard Hue as chairman, CEO and director. Mr. Hue has extensive
experience working in the entertainment, media and information technology
industries. (see "Directors and Executive Officers").
Mr. Hue immediately restructured the Company and re-organized operations to meet
its objectives in the shortest possible time frame. The Multimedia Studio group
and the On-line Games group
<PAGE>
ceased operations. This necessitated the termination and release of several
employees and sub-contractors who did not possess the skills necessary to meet
the Company's immediate needs.
An Advisory Board was named, comprised of respected professionals with
experience in business, operations, finance, technology, telecommunications and
health and fitness to guide the Company toward the implementation of its new
objectives.
In November 1998, a strategic alliance was struck between the Company and
Aludra Inc., a leading interactive software development company with Internet
and e-commerce expertise, for the creation of Actfit.com, which the Company
believes is the Internet's first virtual health and fitness club. Actfit.com
was designed to incorporate high quality interactive graphics and sound
comparable to content found on a multimedia CD ROM, which would allow the
Company to market advertising, product placement and sponsorship
opportunities never before offered on the Internet.
Within two months of the commencement of the project, a working version of
Actfit.com had been developed and delivered. Testing of the new site commenced
at the end of December 1998. Actfit.com was officially launched in January 1999
and is now the core business activity of the Company.
REVENUE
Revenue decreased from $2,538,824 in 1997 to $584,260 in 1998. All revenue in
1998 was derived from sales of CD-ROM products. In 1997, CD ROM sales were
$588,824. Revenues in 1997 included sales of $1,950,000 for exclusive rights to
proprietary software.
OPERATING EXPENSES
COST OF REVENUE
Cost of revenue increased slightly from $322,621 in 1997 to $356,487 in 1998,
due to the lack of volume production of CD ROM products and increased supplier
prices at these lower volumes.
GENERAL AND ADMINISTRATIVE
The increase in general and administrative expenses from $1,255,018 in 1997 to
$2,263,285 in 1998 was primarily attributable to wages, benefits and
amortization of capital assets (computer equipment). The majority of these
expenses were incurred by the on-line games group, which ceased operations
before the end of the fiscal year.
SALES AND MARKETING
The increase in sales and marketing expenses from $690,196 in 1997 to $1,251,867
in 1998 was due primarily due to the lack of agreements with distributors due to
the competitive retail environment and costs associated with self-distribution
of the Company's products to specialized health and
<PAGE>
fitness markets. in addition, costs were incurred in the marketing of the
Company's new activity, actfit.com to business interests.
OPERATING INCOME
WRITE-OFFS TO MEET US GAAP REQUIREMENTS
Historically, the Company's statements are prepared in accordance with Canadian
GAAP. As of January 1, 1999, the Company's statements will be prepared in
accordance with United States GAAP. To meet the requirements of the US GAAP, the
company wrote off three items, being publishing rights, goodwill and deferred
development expenses totaling $544,715.
NET INCOME
The Company reported a net loss of $3,832,094 in 1998, compared to $270,989 in
1997.
RESULTS OF OPERATIONS FOR 1997
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 was 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 was 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. In 1997, costs of sales
included CDN$238,334 of advertising costs and payments of royalties to and
obligations to purchase products from Softech L.P.
The Company's research and development expenditures for the fiscal year ended
December 31, 1997 were primarily to develop on-line gaming, 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.
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 which was subsequently sold,
capital from stock sales, and borrowings from commercial sources.
The Company reported a cash deficiency of $79,731 at December 31, 1998. Accounts
payable and accrued liabilities stood at $861,559 at December 31, 1998 due to
restructuring and reorganization of the Company in the third and fourth quarters
and the rapid development and deployment of actfit.com in the final two months
of the fiscal year. The Company's long-term debt was reduced from $184,900 in
1997 to $126,178 in 1998.
During the period between January 1, 1999 through June 30th, 1999, the Company
received $967,442 (CDN) resulting from a private placement for common shares of
the Company and and additional $312,737 (CDN) resulting from exercising of
options and warrants for common shares of the Company, for a total of $1,280,179
(CDN).
These funds have enable the Company to significantly reduce its accounts payable
while leaving sufficient funds for the Company's development plans.
Additionally, a private placement in the amount of $918,750 (CDN) was closed in
escrow, subject to shareholder's approval, at its annual meeting to be held on
July 22, 1999 and these funds will be deposited in the Company's bank account
immediately upon receipt of the requisite approvals.
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.
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.
We have not as of this date drafted a contingency plan to handle problems that
might arise should the Company's suppliers and major customers sustain
business interruptions caused by Year 2000 problems.
<PAGE>
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. It is anticipated that in
excess of 90% of the Company's revenue will be derived from sales in the U.S. In
the final fiscal quarter of 1999. The Company's costs are generally paid in
Canadian dollars. As the Canadian dollar is depressed in comparison to the
American dollar, the Company's costs are lower than if such costs were paid in
U.S. dollars.
INFLATION
The Company has not experienced any significant inflationary cost increases
during the past four fiscal years.
ITEM 9A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of each person proposed to be
nominated by management for election as a director, the offices of the
corporation currently held by him and the year in which the individual became
a director of the corporation.
<TABLE>
<CAPTION>
YEAR BECAME A
NAME POSITION DIRECTOR
---- -------- --------
<S> <C> <C>
Richard Hue Chief Executive 1998
Toronto, Ontario Officer, President
and Director
Samuel C. Paul Chief Financial 1997
Richmond Hill, Ontario Officer, Treasurer,
Secretary and Director
Allan Hardy Director 1998
Toronto, Ontario
</TABLE>
<PAGE>
THE PRINCIPAL OCCUPATIONS, BUSINESS OR EMPLOYMENT OF EACH OF THE PROPOSED
DIRECTORS AND THEIR RESPECTIVE BIOGRAPHIES AS FOLLOWS:
RICHARD HUE - Chief Executive Officer, President and Director. Richard Hue is an
investment banker and entrepreneur with more than 17 years of management and
investment experience. As former President of RT Equity Inc., a merchant banking
firm, Mr. Hue has been responsible for overseeing the development of start-ups,
restructuring of business operations and expansions of private and public
companies, many in the technology sector. Mr. Hue's experience includes the
ownership and management of a portfolio of residential and commercial real
estate holdings. Educated in business and marketing at the University of Toronto
and UCLA (Los Angeles), Mr. Hue owned and operated a consulting firm and has
served as Director of several public companies.
SAMUEL C. PAUL - Chief Financial Officer, Secretary and Director. With more than
35 years of experience in financial management, Mr. Paul's advice and
experienced counsel are key elements in the design and implementation of the
Company's growth and expansion plans. Mr. Paul owned and operated a public and
auditing accounting practice for many years. He has held senior executive
positions in and served as Director of several public companies, including
American Entertainment Group. He is a graduate of McMaster University where he
earned a degree in Economics and Business and his C.A. designation.
ALLAN HARDY - Director. A financial consultant and advisor, Allan Hardy is
President of his own consulting firm in Toronto. During his career spanning 30
years, Mr. Hardy served in senior executive positions in the insurance industry
and for a number of those years was recognized as a top producer for Imperial
Life Financial.
The Company's by-laws provide for a Board of Directors consisting of six (6)
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 the foreseeable future.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1998, aggregate remuneration paid
to all officers of the Company as a group (4 persons) was approximately
$125,046.
The table below sets forth all annual and long term compensation for services in
all capacities to the corporation and its subsidiary for the corporation's
financial years ending December 31, 1998, and December 31, 1997, of the
president and for the chief operating and financial officer (the "named
executives") being the only executive officers of the corporation.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
<S> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIES RESTRICTED
UNDER SHARES OR
NAME AND OTHER OPTIONS/ RESTRICTED
PRINCIPAL YEAR SALARY BONUS ANNUAL SARS SHARE LTIP ALL OTHER
POSITION ---- ------ ----- COMPENSATION GRANTED UNITS PAYOUTS COMPENSATION
-------- ------------ ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Erik 1998 $ 57,692 NIL $ 1,318(1) NIL NIL NIL NIL
Schannen
President 1997 $ 55,385 NIL $ 740(1) NIL NIL NIL NIL
Richard 1998 NIL NIL $155.27(1) NIL NIL NIL NIL
Hue, Chief
Executive 1997 N/A N/A N/A NIL NIL NIL NIL
Officer &
President
Brian
Gibson,
Chief 1998 $57,885 NIL $ 1,281(1) NIL NIL NIL NIL
Operating &
Financial 1997 $23,077 NIL $ 477(1) 120,000 NIL NIL NIL
Officer
Samuel C. 1998 $6,500 NIL $215.67(1) NIL NIL NIL NIL
Paul, Chief
Financial 1997 N/A N/A N/A NIL NIL NIL NIL
Officer
</TABLE>
(1) REPRESENTS GROUP BENEFITS PLAN PREMIUMS PAID BY THE CORPORATION.
For the fiscal year ended December 31, 1998, no options were granted to the
corporation's named executive officers.
COMPENSATION TO DIRECTORS
During the fiscal year ended December 31, 1998, the directors received no fees
for attending meetings of the board of directors, meetings of committees of the
board of directors which they attended or for the signing of any resolution of
directors or documents on behalf of the corporation.
<PAGE>
None of the current or former officers or directors of the corporation or any
proposed nominee for election as a director or any associate thereof is indebted
to the corporation or its subsidiaries. In addition, no benefits were paid, and
no benefits are proposed to be paid to any of the current or former directors
and officers of the corporation or any proposed nominee for election as a
director of the corporation or any associate thereof under any pension or
retirement plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
AMENDMENT TO THE STOCK OPTION PLAN
On June 27, 1997, shareholders of the Company approved the adoption of a
stock option plan (the "stock option plan") to encourage stock ownership by
directors, officers, employees, consultants and advisors of the Company, as
well as other persons who provide services to the Company who are primarily
responsible for the management and profitable growth of its business and to
advance the interests of the Company by providing incentives for significant
performance by such persons and to enable the Company to attract and retain
valued directors, officers and employees. Other than the stock option plan,
the Company has no other share compensation arrangements. as of June 30th,
1999 the Company has granted options to purchase 3,912,500 common shares to
certain directors, senior officers and other members of the Company's
management and consultants and granted an additional 2,003,000 options, which
grant is discussed below and contingent upon the requisite shareholder
approval. The granting of options is subject to the further condition that:
i0 at no time shall the number of shares reserved for issuance pursuant to
stock options granted to insiders exceed 10% of the outstanding issue;
II0 at no time shall insiders be issued, within a one-year period, a number
of shares exceeding 10% of the outstanding issue; and
III0 at no time shall any one insider and such insider's associates be
issued, within a one-year period, a number of shares exceeding 5% of
the outstanding issue.
Currently, 4,000,000 common shares have been reserved for issuance under the
stock option plan. As of the date hereof, 3,912,500 options have been granted
and 127,115 common shares have been issued on the exercise of options. In
addition, the board of directors propose at the annual meeting of shareholders
to amend the stock option plan in order to increase the number of common shares
reserved for issuance under the stock option plan. In this regard, the Company
has conditionally granted an additional 2,003,000 stock options, pending
shareholder approval. Of these additional stock options granted pending
shareholder approval, 550,000 options were granted to Richard Hue, which grant,
in conjunction with previous grants, accounts for more than 5% of the
outstanding
<PAGE>
issue over a one-year period, contrary to the provisions of the stock option
plan. Shareholder approval is also sought to permit Richard Hue to receive the
grant of options in excess of 5% of the outstanding issue.
The chart below sets out the options currently reserved for issuance, the
options granted to date and the number of options proposed to be available for
grants.
<TABLE>
<S> <C>
Original Reserve 4,000,000
Options Granted to Date 3,912,500
---------
Options Available to be Granted Prior to the Proposed Increase 87,500
Proposed Increase 7,000,000
Less Options Granted Subject to Shareholders' Approval 2,003,000
---------
Options Available to be Granted Following the Proposed Increase 5,084,500
---------
---------
</TABLE>
The board of directors believes that it should have available 5,084,500 options
to meet anticipated needs and to provide a reasonable contingency. Therefore,
the board of directors believes that it would be appropriate to increase the
number of common shares reserved for issuance under the stock option plan by
7,000,000. This would result in an increase in the number of common shares
reserved for issuance under the stock option plan from 4,000,000 to 11,000,000.
taking into consideration the proposed increase, the number of common shares
reserved for issuance and outstanding unexercised options will be approximately
55.8% of the issued and outstanding common shares of the Company.
Pursuant to the terms of the stock option plan and in accordance with the rules
of the Toronto Stock Exchange (the "TSE Rules"), the proposed amendment to the
stock option plan, the approval of the grant of 2,003,000 options, and approval
for past option grants to Richard Hue to exceed 5% of the outstanding issue,
requires the approval of a majority of the votes cast at the meeting by
disinterested shareholders, which are votes cast at a meeting other than votes
attaching to securities beneficially owned by insiders of the corporation to
whom shares may be issued under the plan and any associate of such insider.
PERMISSION TO EXCEED CERTAIN THRESHOLDS
In addition to the above noted amendments to the stock option plan, the
shareholders will be asked to to approve a resolution to permit the Company to
amend the stock option plan to allow for (I) certain specified thresholds set
out in applicable securities regulations for such share compensation
arrangements, to be exceeded; and (II) the elimination of the limitation in
subsection 7(a) of the stock option plan which limits the number of shares which
may be
<PAGE>
reserved for issuance to any one person pursuant to options granted under the
stock option plan or otherwise, not to exceed 5% of the outstanding issue.
specifically, the Company is subject to the TSE rules. The TSE rules provide
that where a stock option plan, together with any other share compensation
arrangements, could result, at any time, in the number of shares reserved for
issuance pursuant to the plan exceeding 10% of the outstanding issue or the
issuance within a one-year period of a number of shares exceeding 10% of the
outstanding issue, approval of the plan by the Company's shareholders is
required. The TSE rules further provide that if a stock option plan, together
with any other share compensation arrangements, could result, at any time, in:
i) the number of shares reserved for issuance pursuant to stock options
granted to insiders exceeding 10% of the outstanding issue;
ii) the issuance to insiders, within a one-year period, of a number of
shares exceeding 10% of the outstanding issue; or
iii) the issuance to any one insider and such insider's associates, within a
one-year period, of a number of shares exceeding 5% of the outstanding
issue,
Then the stock option plan must be approved by a majority of the votes cast by
disinterested shareholders at a shareholders' meeting, that is, votes cast at a
meeting other than votes attaching to securities beneficially owned by insiders
of the subject corporation to whom shares may be issued under the plan and any
associates of such insiders. As the Company is seeking to exceed the above
thresholds in respect to issuances to insiders or their associates, the approval
of disinterested shareholders at the annual shareholders meeting will be
required.
In the event that the approval of disinterested shareholders is not obtained,
the Company's stock option plan will continue to be subject to the above
referenced limitations as set out in the TSE rules and the limitation contained
in subsection 7(a) of the stock option plan.
EXECUTIVE OPTION HOLDERS
In 1998 there were no options held by or exercised by the officers,
directors or senior management of the Company.
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 the
Company to warrantholders of that company. As of December 31, 1998, a total of
2,644,094
<PAGE>
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.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Other than transactions carried out in the ordinary course of business of the
Company or any of its subsidiaries, none of the directors or executive officers
of the Company, a proposed management nominee for election as a director of the
Company, any member beneficially owning shares carrying more than 10% of the
voting rights attached to the shares of the Company nor an associate or
affiliate of any of the foregoing persons had since January 1, 1998 (being the
commencement of the Company's last completed financial year) any material
interest, direct or indirect, in any transactions which materially affected or
would materially affect the Company or any of its subsidiaries.
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
N/A
PART III
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.
ITEM 16. CHANGES IN SECURITIES, 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.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The Company has chosen to provide the financial statements specified in Item 18
in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS
See Item 19(a)
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
See page F-1
(b) EXHIBITS
NONE
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Auditors' Report for the year ended December 31, 1996 F-2
Auditors' Report for the years ended December 31, 1998, 1997 and 1996 F-3
Consolidated Balance Sheets F-4
as of December 31, 1998, 1997 and 1996
Consolidated Statements of Deficit F-5
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Operations F-6
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Revenue and Expenses F-7
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Financial Position F-8
for the years ended December 31, 1998, 1997and 1996
Notes to the Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Shareholders and Partners of
LASERMEDIA INC., ET AL
We have audited the combined balance sheet of LASERMEDIA INC., ET AL as at
December 31, 1996 and the combined statements of operations, retained earnings
and changes in financial position for the year 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
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.
/s/ Silver Gold Glatt & Grosman
-------------------------------
Silver Gold Glatt & Grosman
Chartered Accountants
Toronto, Ontario
March 25, 1997 and January 29, 1998 as to note 8
F-2
<PAGE>
AUDITORS' REPORT
To the Shareholders of
LASERMEDIA COMMUNICATIONS CORP.
We have audited the consolidated balance sheet of LASERMEDIA COMMUNICATIONS
CORP. as at December 31, 1998, 1997 and 1996 and the consolidated statements of
operations, deficit and changes in financial position for the years 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, 1998, 1997
and 1996 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.
The 1996 comparative figures have been audited by another firm of chartered
accountants.
/s/ G.G. Cunningham & Associates
--------------------------------
G.G. Cunningham & Associates
Chartered Accountants
Toronto, Ontario
May 10, 1999
F-3
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
(Incorporated under the laws of the Province of Ontario)
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
ASSETS
CURRENT
Cash $ -- $ 725,171 $ 15,882
Accounts receivable 116,897 581,165 42,451
Inventory -- 82,412 6,394
Investment tax credit receivable 431,558 357,222 84,065
Prepaid expense and sundry assets 128,513 167,534 --
Loan receivable -- 175,000 --
676,968 2,088,504 148,792
CAPITAL ASSETS (Note 3) 550,958 650,630 29,224
DEFERRED DEVELOPMENT COSTS (Note 4) 418,879 404,749 50,494
GOODWILL (net of accumulated amortization of $7,577) 93,461 471,961 --
PUBLISHING RIGHTS -- 102,071 --
$ 1,740,266 $ 3,717,915 $ 228,510
LIABILITIES
CURRENT
Bank indebtedness (Note 5) $ 79,731 $ -- $ --
Accounts payable and accrued liabilities 861,559 430,072 100,362
Loans payable (Note 6) 836,630 -- --
Due to related companies -- -- 221,335
Current portion of long term debt (Note 7) 232,049 77,806 --
2,009,969 507,878 321,697
LONG TERM DEBT (Note 7) 126,178 184,900 --
2,136,147 692,778 321,697
CAPITAL DEFICIENCY
CAPITAL STOCK (Note 8) 3,258,413 2,847,337 2
RETAINED EARNINGS (DEFICIT) (3,654,294) 177,800 (93,189)
(395,881) 3,025,137 (93,187)
$ 1,740,266 $ 3,717,915 $ 228,510
</TABLE>
F-4
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
RETAINED EARNINGS (DEFICIT), Beginning of year $ 177,800 $ (93,189) $ (11,912)
NET INCOME (LOSS) (3,832,094) 270,989 (81,277)
RETAINED EARNINGS (DEFICIT), End of year $(3,654,294) $ 177,800 $ (93,189)
</TABLE>
F-5
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUE $ 584,260 $ 2,538,824 $ 383,154
OPERATING EXPENSES
Cost of revenue 356,487 322,621 269,707
General and administrative 2,263,285 1,255,018 111,473
Sales and marketing 1,251,867 690,196 83,251
3,871,639 2,267,835 464,437
OPERATING INCOME (LOSS) BEFORE UNDERNOTED ITEMS (3,287,379) 270,989 (81,277)
UNDERNOTED ITEMS
Write-off of publishing rights 102,071 -- --
Write-off of goodwill 373,448 -- --
Write-off of deferred development costs 69,196 -- --
544,715 -- --
NET INCOME (LOSS) $(3,832,094) $ 270,989 $ (81,277)
BASIC EARNINGS (LOSS) PER SHARE $ (0.29) $ 0.02 $ (0.01)
AVERAGE SHARES OUTSTANDING - BASIC 13,278,649 11,950,243 11,033,532
FULLY DILUTED EARNINGS (LOSS) PER SHARE $ (0.22) $ 0.02 $ (0.01)
AVERAGE SHARES OUTSTANDING - FULLY DILUTED 17,050,618 16,022,711 11,033,532
</TABLE>
F-6
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF REVENUE AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUE
Sales $ 584,260 $ 588,824 $ 383,154
Sale of computer software -- 1,950,000 --
$ 584,260 $ 2,538,824 $ 383,154
GENERAL AND ADMINISTRATIVE
Wages and benefits $1,012,300 $ 325,187 $ 53,734
Subcontractors 201,401 -- --
Professional fees 141,595 98,495 4,110
Consulting fees 127,363 470,453 --
Office and general 103,632 35,328 11,275
Interest and bank charges 96,589 12,806 1,102
Investor relation fees 92,171 40,000 --
Rent 85,103 18,596 8,391
Automobile 39,373 -- --
Bad debts 28,036 99,727 --
Telephone and communications 24,387 10,445 4,669
Insurance 22,071 10,205 --
Transfer agent fees 20,309 9,103 --
Management fees -- -- 20,351
Amortization of publishing rights -- 9,279 --
Amortization of deferred development costs 67,597 37,183 --
Amortization of goodwill 5,052 12,102 --
Amortization of capital assets 196,306 66,109 7,841
$2,263,285 $ 1,255,018 $ 111,473
SALES AND MARKETING
Advertising and promotion $ 146,657 $ 218,059 $ 11,348
Marketing fees 401,827 166,092 7,032
Revenue guarantee fees 500,000 -- --
Travel and convention 71,965 137,207 --
Meals and entertainment 86,577 64,070 10,930
Trade shows -- 44,410 41,683
Commissions 40,377 40,083 --
Royalties 4,464 20,275 12,258
$1,251,867 $ 690,196 $ 83,251
</TABLE>
F-7
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(3,832,094) $ 270,989 $ (81,277)
Adjustment for non-cash items:
Amortization of capital assets 196,306 66,109 7,841
Amortization of publishing rights -- 9,279 --
Amortization of deferred development costs 65,597 37,183 --
Amortization of goodwill 5,052 12,102 --
Write-off of deferred development costs 69,196 -- --
Write-off of publishing rights 102,071 -- --
Write-off of goodwill 373,448 -- --
(3,020,424) 395,662 (73,436)
Changes in non-cash operating assets and liabilities (Note 9) 942,852 (725,713) (51,595)
CASH EXPENDED IN OPERATING ACTIVITIES (2,077,572) (330,051) (125,031)
INVESTING ACTIVITIES
Purchase of publishing rights -- (111,350) --
Purchase of goodwill -- (484,063) --
Increase in deferred development costs (148,923) (391,438) (48,378)
Purchase of capital assets (96,634) (687,515) (37,065)
CASH EXPENDED IN INVESTING ACTIVITIES (245,557) (1,674,366) (85,443)
FINANCING ACTIVITIES
Increase in long term debt 95,521 262,706 -
Decrease (increase) in loans receivable 175,000 (175,000) 16,069
Increase in loans payable 836,630 -- (3,750)
Increase in capital stock 411,076 2,847,335 --
Increase (decrease) in advances from related companies -- (221,335) 213,502
CASH PROVIDED BY FINANCING ACTIVITIES 1,518,227 2,713,706 225,821
NET CHANGE IN CASH (804,902) 709,289 15,347
CASH, Beginning of year 725,171 15,882 535
CASH (DEFICIENCY), End of year $ (79,731) $ 725,171 $ 15,882
</TABLE>
F-8
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern, which assumes
that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business. The Company is in significant
need of additional financing to enable it to continue its business. In the
absence of additional financing, the Company will not have sufficient funds
to meet its obligations. Management continues to look at various
alternatives to raise additional financing.
If the going concern basis was not appropriate, material adjustments may be
necessary in the carrying amounts and/or classification of assets and
liabilities and the loss for the year reported in these financial
statements.
These accounting principles are also generally accepted in the United
States in all material respects except as noted in Note 13.
2. 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:
<TABLE>
<S> <C>
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
</TABLE>
DEFERRED DEVELOPMENT COSTS
Certain software development costs are capitalized once technical
feasibility has been established
F-9
<PAGE>
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.
F-10
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
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-11
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997 1996
ACCUMULATED NET BOOK NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C>
Equipment $ 403,742 $ 300,407 $ 103,335 $ 121,238 $ 5,961
Computer hardware 354,062 123,975 230,087 254,687 23,263
Automobile 13,074 11,765 1,309 1,870 --
Furniture and fixtures 81,303 23,487 57,816 72,269 --
Computer software 48,201 35,154 13,047 16,728 --
Leasehold improvements 204,468 59,104 145,364 183,838 --
$ 1,104,850 $ 553,892 $ 550,958 $ 650,630 $ 29,224
</TABLE>
4. DEFERRED DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
BALANCE, Beginning of year $ 404,749 $ 50,494 $ --
Costs deferred during the year 223,259 528,449 119,351
Investment tax credit claimed on additions (74,336) (137,011) (68,857)
Costs written off during the year (69,196) -- --
Amortization during the year (65,597) (37,183) --
BALANCE, End of year $ 418,879 $ 404,749 $ 50,494
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at prime plus 1/2%, is due on demand and
is secured by a general security agreement.
F-12
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. LOANS PAYABLE
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Loan #1 - bears interest at a rate of 14% per annum, due on November 30,
1998 and secured by convertible promissory note, general security
agreement, 500,000 common shares of the Company and several guarantees by
former directors and a related company. This loan was in default at year end. $290,782 $ -- $ --
Loan #2 - bears interest at a rate of 12% per annum, due on January 31,
1999 and secured by a general security agreement, 650,000 common shares of
the Company and 475,000 common shares of another public company. 76,010 -- --
Loan #3 - bears interest at a rate of prime plus 6% per annum, due on April
2, 1999 and is secured by a general security agreement, 300,000 common
shares of the Company and guarantees by several third parties. 231,231 -- --
Loan #4 - bears interest at a rate of 12% per annum, due on
demand and is unsecured. 10,000 -- --
Loan #5 - non-interest bearing, due on demand and is
unsecured. This loan was subsequently converted to equity
(see note 11(d)) 20,500 -- --
Loan #6 - non-interest bearing, due on demand and is
unsecured. This loan was subsequently converted to
equity (see note 11(d)) 33,580 -- --
Loan #7 - non-interest bearing, due on demand and is
unsecured. 153,575 -- --
Loan #8 - non-interest bearing, due on demand and is
unsecured. 20,952 -- --
$836,630 $ -- $ --
</TABLE>
F-13
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. LONG TERM DEBT
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <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. $162,500 $ 183,333 $ --
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. 9,569 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. 47,674 61,153 --
Equipment loan #3 - bears interest at 7.7% per annum, secured by the
equipment, repayable in blended monthly amounts of $4,325 and is
due February, 2001. 95,130 -- --
Equipment loan #4 - bears interest at 14.8% per annum, secured by the
equipment, repayable in blended monthly amounts of $1,639 and is
due February, 2001. 43,354 -- --
358,227 262,706 --
Less: current portion (232,049) (77,806) --
$126,178 $ 184,900 $ --
</TABLE>
Principal repayments for the next three years are as follows:
<TABLE>
<S> <C>
1999 $232,049
2000 81,055
2001 45,123
$358,227
</TABLE>
F-14
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. CAPITAL STOCK
AUTHORIZED
Unlimited Common shares
2,000,000 Preference shares
<TABLE>
<CAPTION>
ISSUED SEE NOTE NUMBER
BELOW OF SHARES AMOUNT
<S> <C> <C> <C>
Balance as at December 31, 1996 125,830 $ 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 2,847,337
Upon issued to consultant for services rendered (m) 7,000 7,000
Upon exercise of Series "A" purchase warrants (o) 100,000 50,000
Upon cancellation of common shares (p) (3,750) (3,750)
Upon exercise of Series"E" purchase warrants (q) 17,000 14,450
Upon exercise of stock options (r) 13,125 13,593
Upon exercise of Series "E" purchase warrants (s) 70,374 52,780
Upon proceeds from private placement (t) 717,500 143,500
Upon issued to consultant for services rendered (u) 667,514 133,503
14,607,054 $ 3,258,413
</TABLE>
F-15
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (continued)
(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 $0.90 to $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 $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.
(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 $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 $1.60 and
$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
$26,390.
(k) On December 3, 1997, the Company issued 3,750 common shares upon
exercising of stock options for consideration of $3,750.
(l) On December 8, 1997, the Company granted 10,000 stock options to a
director of the Company. These options are exercisable at $1.00 per
common share on or before December 7, 1999.
F-16
<PAGE>
(m) On January 26, 1998, the Company issued 7,000 common shares for
consulting services rendered of $7,000.
(n) On March 16, 1998, the Company cancelled 100,000 Series "A" warrants.
(o) On March 23, 1998, the Company issued 100,000 common shares upon
exercising of Series "A" purchase warrants for consideration of $50,000
F-17
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (continued)
(p) On April 14, 1998, the Company cancelled 3,750 common shares
previously issued December 3, 1997.
(q) On April 16, 1998, the Company issued 17,000 common shares upon
exercising of Series "E" purchase warrants for consideration of
$14,450.
(r) On April 17, 1998, the Company issued 13,125 common shares upon
exercising stock options for consideration of $13,594.
(s) On April 18, 1998, the Company issued 70,374 common shares upon
exercising of Series "E" purchase warrants for consideration of
$52,780.
(t) On November 18, 1998 the Company issued 717,000 common shares by way
of a private placement for $143,000.
(u) On November 20, 1998 the Company issued 667,514 common shares for
consulting services rendered in the amount of $133,503.
STOCK OPTION PLAN
The Company has approved a stock option plan (the "Plan") for directors,
officers, employees, consultants and advisors of Lasermedia Communications
Corp., its 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
4,000,000 shares. No single individual may hold options in respect of more
than 5% of the issued and outstanding common shares. 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:
<TABLE>
<CAPTION>
SEE NOTE PRICE 1998 1997 1996
EXPIRY DATE ABOVE $ # # #
<S> <C> <C> <C> <C> <C>
STOCK OPTIONS
July 16, 1999/July 16, 2000 (d), (r) $0.90-$1.75 820,875 834,000 --
August 12, 1999 (e) 1.25 4,000 4,000 --
September 23, 1999 (g) 1.60 20,000 20,000 --
October 22, 1999 (i) 1.60-2.00 15,000 15,000 --
December 7, 1999 (l) 1.00 10,000 10,000 --
869,875 883,000 --
</TABLE>
F-18
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (Continued)
<TABLE>
<CAPTION>
SEE NOTE PRICE 1998 1997 1996
EXPIRY DATE ABOVE $ # # #
PURCHASE WARRANTS
<S> <C> <C> <C> <C> <C>
March 31, 2002 (b), (f), (j), $0.75-$1.50 2,902,094 3,189,468 -
(n), (o), (q), (s)
</TABLE>
9. STATEMENT OF CHANGES IN FINANCIAL POSITION
CHANGES IN NON-CASH OPERATING ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $ 464,268 $ (538,714) $ 65,010
Increase in investment tax credit receivable (74,336) (273,157) (84,065)
(Increase) decrease in inventory 82,412 (76,018) (6,394)
(Increase) decrease in prepaid expenses and sundry assets 39,021 (167,534) 9,857
Increase in accounts payable and accrued liabilities 431,487 329,710 (36,003)
$ 942,852 $ (725,713) $ (51,595)
</TABLE>
10. INCOME TAXES
The Company and its subsidiaries have non-capital losses of $3,906,367
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 $720,337 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:
<TABLE>
<S> <C>
1999 $ 21,508
2000 69,101
2001 15,403
2002 13,768
2003 54,994
2004 264,718
2005 257,359
2006 3,209,516
$ 3,906,367
</TABLE>
F-19
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
(a) In January, 1999, the Company cancelled 869,875 stock options and
granted 319,500 stock options to various employees, directors and
consultants. These options are exercisable at $0.20 per common share.
(b) In January, 1999, the Company granted 2,473,500 stock options to
certain employees and consultants and 180,000 stock options to
directors of the Company. These options are exercisable at $0.20 per
common share.
(c) In March, 1999, the Company granted 10,000 stock options to a certain
employee and 160,000 stock options to various consultants of the
Company. These options are exercisable between $0.20- $0.40 per common
share.
(d) From January 1, 1999 to May 10, 1999, the Company issued 3,283,401
common shares upon a private placement, upon exercise of stock options
and upon in lieu of services rendered for consideration of $680,594.
12. COMMITMENTS AND CONTINGENCIES
(a) 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 four years are as follows:
<TABLE>
<S> <C>
1999 $ 91,553
2000 96,937
2001 95,484
2002 31,667
</TABLE>
(b) The Company and its subsidiaries are involved in certain litigation
arising out of the ordinary course and conduct of its business. The
outcome of this litigation is not currently determinable. Although
such matters cannot be predicted with certainty, management does not
consider the Company's exposure to such litigation to be material to
these financial statements.
F-20
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES 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 1998 1997
1996
<S> <C> <C> <C>
Net income (loss) in accordance with
Canadian GAAP $ (3,832,094) $ 270,989 $ (81,277)
Less: deferred development costs1 148,923 354,255 50,494
compensation expense4 -- 62,938 --
Add: amortization of goodwill on
reverse-takeover acquisition 5,052 2,526 --
Net income (loss) in accordance with U.S. GAAP $ (3,975,965)$ (143,678) $ (131,771)
Weighted average number of common
shares under BASIC EPS3 13,278,649 11,950,243 11,033,532
BASIC earnings (loss) per share in accordance
with U.S. GAAP3 $ (0.30) $ (0.01) $ (0.01)
Weighted average number of common shares
and their equivalents under the treasury
stock method3 14,403,954 13,418,742 11,033,532
Diluted earnings (loss) per share in
accordance with U.S. GAAP3 $ (0.28) $ (0.01) $ (0.01)
(B) Adjustments to Assets and Shareholders' Equity
(i) Total assets in accordance with Canadian GAAP $ 1,740,266 $ 3,717,915 $ 228,510
Net income (loss) in accordance with
Less: - deferred development costs1 418,879 404,749 50,494
- goodwill on reverse-takeover acquisition5 93,461 101,038 --
Total assets in accordance with U.S. GAAP $ 1,227,926 $ 3,212,128 $ 178,016
</TABLE>
F-21
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) (continued)
(B) Adjustments to Assets and Shareholders' Equity (continued)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(ii) Total shareholders' equity (deficiency) in
accordance with Canadian GAAP $ (395,881)$ 3,025,137 $ (93,187)
Less: deferred development costs1 148,923 354,255 50,494
Add: amortization of goodwill on
reverse-takeover acquisition5 5,052 2,526 --
Total shareholders' equity (deficiency) in
accordance with U.S. GAAP $ (539,752)$ 2,673,408 $ (143,681)
(C) Adjustments to Cash Flows
Cash expended in investing activities
in accordance with Canadian GAAP $ (245,557)$ (1,674,366) $ (85,433)
Less: deferred development costs1 148,923 354,255 50,494
Add: goodwill on reverse-takeover acquisition5 93,461 101,038 --
Cash expended in investing activities
in accordance with U.S. GAAP $ (301,019)$ (1,927,583) $ (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 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.
F-22
<PAGE>
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) (continued)
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, 1998.
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.
14. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue relates to the potential problems that may arise due to
possible date limitations in computerized systems. The effects of the Year
2000 Issue may be experienced before, on or after January 1, 2000 and if
not addressed, the impact on operations and financial reporting may range
from minor errors to significant system failure, which could affect an
entity's ability to conduct normal business operations. Management is
confident that it will have programs in place to identify, test and
minimize the Company's exposure to the Year 2000 Issue. They feel that the
costs related to the Year 2000 Issue are not material. However, it is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LASERMEDIA COMMUNICATION CORP.
By: /s/ Richard Hue
---------------------------
Richard Hue
President and Chief
Executive Officer
By: /s/ Samuel C. Paul
---------------------------
Samuel C. Paul
Chief Financial Officer,
Treasurer and Secretary
Date: August 5, 1999
