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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-27047
ROMPUS INTERACTIVE CORP.
(Name of small business issuer as specified in its charter)
FLORIDA 65-0750004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2550 ARGENTIA ROAD, SUITE 121
MISSISSAUGA, ONTARIO, CANADA L5N 5R1
(Address of principal executive offices) (Zip code)
(905) 819-8100
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.0001 per share
Check whether Registrant (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [ ]
Registrant's revenues for its fiscal year ended August 31, 1999, were $41,734.
As of December 10, 1999, Registrant had 7,601,573 shares of its $.0001 par value
Common Stock issued and outstanding with an aggregate market value of the common
stock held by non-affiliates of $14,403,000. This calculation is based upon the
closing sales price of $2.00 per share on December 10, 1999.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [x]
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TABLE OF CONTENTS AND CROSS REFERENCE SHEET
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PART I PAGE
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Item 1 Description of Business 1
Item 2 Description of Property 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART II
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Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis 7
Item 7 Financial Statements 9
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
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Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 9
Item 10 Executive Compensation 10
Item 11 Security Ownership of Certain Beneficial Owners and
Management 11
Item 12 Certain Relationships and Related Transactions 12
PART IV
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Item 13 Exhibits and Reports on Form 8-K 13
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PART I
ITEM 1 - BUSINESS
A. BUSINESS DEVELOPMENT
1. FORM AND YEAR OF ORGANIZATION
Rompus Interactive Corp. (the "Company" or "Rompus") was first
incorporated as Mercur Enterprises, Inc. in August, 1991 in the state of
Florida. Reinstated in August, 1995, the Company changed its name to Auto
Metreks, Inc. on January 3, 1997, and traded on the OTC/BB under the symbol
ATMT until April 5, 1999. The Company changed its name to OnLine Hearing
Dot Com, Co. on April 6, 1999. The Company's wholly-owned subsidiary,
Rompus CD-ROM Production Ltd., is incorporated under the laws of the
province of British Columbia, Canada ("Rompus-BC"). Effective July 30,
1999, the Company entered into a share exchange with Rompus-BC wherein the
Company acquired all of the common stock of Rompus-BC in exchange for
common and preferred stock of the Company. On July 30, 1999, the Company
changed its name to Rompus Interactive Corporation. The Company commenced
trading on the over-the-counter bulletin board ("OTC/BB") as ONLH and
currently trades on the over-the-counter market as IDCD.
2. ANY BANKRUPTCY, RECEIVERSHIP OR SIMILAR PROCEEDING
Not Applicable.
3. ANY MATERIAL RECLASSIFICATION, MERGER, CONSOLIDATION,
OR PURCHASE OR SALE OF A SIGNIFICANT AMOUNT OF ASSETS NOT IN THE ORDINARY
COURSE OF BUSINESS
The Company entered into a share exchange agreement effective July
30, 1999, with certain of its shareholders, Rompus-BC and the shareholders
of Rompus-BC that resulted in the Company being the parent and Rompus-BC
being the subsidiary operating company.
B. BUSINESS OF ISSUER
The Company's business focuses on providing innovative multimedia
solutions to companies in E-commerce and Internet marketing. The Company
has developed an innovative product known as the i.d.rom-TM-. An
i.d.rom-TM- is a CD-ROM shaped like a business card, on which large amounts
of audio and video information can be stored. When placed in a standard
computer, it replays its multimedia content then connects to the user's web
site. This product allows a company, regardless of its size or its
industry, to market its image and products anywhere using leading edge
multimedia technology. The concept is simple yet unique. Rompus is able to
provide businesses worldwide with the technical, design and manufacturing
means to better meet the demand of their markets. It does this by producing
interactive multimedia presentations to fulfill its clients' communications
needs, and delivering them in the i.d.rom-TM- package.
1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKET
a. THE MARKET
The technology market has been molded by the explosive growth of
the Internet and the overwhelming interest of the business community in
E-commerce, expected to generated $95 billion in revenue by the end of 1999
according to the figures from Activmedia and sales of $3.2 trillion by 2003
according to Forrester Research. Online retail is an industry that the
Boston Consulting Group cites as growing at a rate of 200% per annum. In
addition, Giga Information Group found that companies are already saving
billions of dollars by turning to the Internet to deal with suppliers,
customers and internal communications.
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Many organizations have created expensive web sites, invested in
elaborate E-commerce sites and purchased advertising, and still, have failed to
drive target customers to their site, build brand identity or generate
[substantial] revenue. This disparity has created a need for innovative new
economy marketing initiatives. In fact, the Web is now the third most popular
advertising and promotion medium for the local business market, after the Yellow
Pages and newspapers, according to the Kelsey Group and ConStat Inc. Successful
businesses are embracing innovative technology solutions in order to assume
leadership in Internet and E-commerce initiatives.
b. PRINCIPAL PRODUCTS AND SERVICES
The Company's current products focus almost entirely on the
i.d.rom-TM-. The i.d.rom-TM- is a quality, cost-effective marketing tool. An
i.d.rom-TM- is a CD-ROM shaped like a business card, on which large amounts of
audio and video information can be stored. When placed in a standard computer,
it replays its multimedia content then connects to the user's web site.
Marketing via an i.d.rom-TM- allows companies to increase their return on
investment by displacing other marketing materials. Radio or television
commercials and promotional videos can be reproduced and digitally edited.
Artwork can be scanned and databases added effortlessly. Additionally, the
i.d.rom-TM- can be programmed to link the user directly to any web site. Rompus
has pioneered a revolutionary disc-to-net interfacing process, known as
Connected CD-ROM. Webmasters can record site hits and orders generated by any
i.d.rom-TM-. This, along with e-mail, is a powerful means to track the usage and
effectiveness of a company's i.d.rom-TM- marketing program. The i.d.rom-TM-
combines multimedia design and production by either the Company or the customer
with specialized functions.
i. MULTIMEDIA DESIGN AND PRODUCTION
Rompus' focus has been to create useful interfaces between information
and information users. When placed in a standard computer, the i.d.rom-TM-
replays its multimedia content then connects to the user's web site. The
i.d.rom-TM- uses aspects of current existing media resources, such as television
or radio commercials, corporate videos, brochure or catalog artwork or text,
technical drawings or web site content, while reducing much of the media cost
and production time. While the specific needs of each customer are different,
Rompus can provide all of the services necessary to make a compelling and
effective multimedia presentation and accompanying web site for each customer's
i.d.rom-TM- .
ii. ON-LINE DESIGNER
Rompus has created an unprecedented tool called the i.d.rom-TM-
Designer. Using the Designer, the customer will be able to create their own
multimedia presentation and label to be put on their i.d.rom-TM- . The Designer
program will be available for download free of charge from the Company's
i.d.rom-TM- web site, and will run on the customer's computer. Network and sever
capacity is not required. When the customer is satisfied with their layout, they
can upload the information to the i.d.rom-TM- server along with partial payment.
The information will be compiled, and e-mailed back to the customer as an
executable file, along with a draft of the label, for final confirmation. On
confirmation of the order, the balance of payment will be remitted.
iii. SPECIALIZED FUNCTIONS
While the Company continues to develop new and innovative functions and
products, some specialized functions developed and proven by Rompus and
available for use on i.d.rom-TM- are listed below:
1) DOCUMENT ENCRYPTION/PASSWORD DE-ENCRYPTION. Any document
can be encrypted and delivered on an i.d.rom-TM-. The user of the i.d.rom-TM-
cannot open the documents until they have acquired a password, by telephone,
over the Internet or otherwise, from the issuer of the i.d.rom-TM- . This
creates opportunities for the user to provide sensitive information, such as
detailed product specifications, without the danger of widespread access. An
issuer can also control the release of content by delivering the content but not
supplying the password until the user provides the purchase price.
2) ONE CARD/MANY NAMES. A solution developed for customers
such as real estate or financial services brokers allows profiles of many people
to be stored on one i.d.rom-TM- while only the profile of the person whose
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name is printed on the label is accessible by the user. The user could still
access generic information about the company no matter which individual
person's information is accessed. Typing in the first few letters of the name
of the person on the label could provide the user with not only information
on the named individual but a link to the named person's e-mail address or
individual web site.
3) CD KEY. This feature allows an i.d.rom-TM- to be registered
as an exclusive key to a restricted web site. The i.d.rom-TM- creates a link to
the secured site, and generates and passes an encrypted password. Unless the
i.d.rom-TM- is in the computer, the user will not be able to access the site.
The issuer can then ensure that only authorized individuals are privy to
information contained on the site. For example, sensitive information such as
pricing or product specifications, or premium content such as new music releases
will be protected. This feature can be applied to existing CD-ROMs and CDs.
4) WEB LINK TRACKING. Every line to the Internet from every
i.d.rom-TM- can be individually monitored to collect data on usage patterns.
This process is transparent to the user, but allows Rompus and its customers to
evaluate the effectiveness of each i.d.rom-TM-. Data can be made available in
real time to customers, through a password protected web site, or delivered
periodically as the customer requires.
5) I.D.ROM-TM- REFERRAL LINK. Every i.d.rom-TM- has an
animated i.d.rom-TM- logo on its main menu. Mousing over this logo shows the
notice to learn more about i.d.rom-TM- and connects the user to i.d.rom.com, the
Company's web site.
6) VIDEO PLAYER. To eliminate the typical slow process of
installing video playback software on the user's system, Rompus has incorporated
the technical capability to embed the most popular video formats such as MPEG in
the multimedia program. The result is a presentation that plays automatically
and requires no set up or installation.
7) GIS DATA VIEWER. This is a highly specialized function that
provides the non-expert with a map with pre-processed data presented to the user
in a simple, intuitive interface.
8) WINDOWS/MACINTOSH COMPATIBILITY. Although the popularity of
Macintosh appears to be waning, it still retains a very loyal customer base. Mac
users tend to be early adopters, while being quite computer and design savvy. To
avoid alienating this user group, Rompus develops i.d.roms to run on both
Windows 95/98/NT and Macintosh platforms.
9) STOCK CONTENT. For less sophisticated customers who may not
have a web site or presentable digital content, stock content will be made
available. For example, content may be purchased or licensed from other sources
and could include a screen saver, mortgage calculator, historic weather data,
animals, etc. Customers will be able to select the stock content they want on
the i.d.rom, they then only need to provide the label art.
10) MULTIMEDIA FUNCTIONS. In addition to the specialized
functions listed above, an i.d.rom can deliver the latest in multimedia
features. Currently the state of the art multimedia includes: text, full color
still images, audio, video 2-D animation, 3-D renderings, 360-degree panoramic
"virtual reality" environments, vector graphics which are infinitely scaleable
and the ability to launch other applications.
2. DISTRIBUTION
The Company's products are distributed directly to customers, through
affiliations with advertising agencies, printers, print brokers, media
designers, novelty distributors and licensees.
Rompus intends to market its product through the following channels:
a. Directly to the Customer- Regional sales
representatives will be situated across the United States
and Canada and, as prospective customers are identified, a
qualified i.d.rom representative will make personal contact.
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b. Media Exposure- Mansfield Communications Inc. has been
retained as Rompus' agency of record for all pubic relations
initiatives. Mansfield has designed a comprehensive media
campaign targeted to "No charge direct distribution services"
(such as free software and e-mail web sites).
c. Advertising- Advertising will be focused primarily in
the print medium. Rompus plans to advertise in national
newspapers and fist round publications which are directed to
the marketing industry.
d. Trade shows- The Company will exhibit the i.d.rom at
selected venues such as Film Expo, Graphic Expo and Seybold.
e. Off-line- i.d.roms will be mailed directly to
prospective customers and resellers.
f. On-line- On-line marketing will focus on the ease of
finding and accessing the i.d.rom site through search engines
and advertising banners, e-mail solicitations and product
previews.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR
SERVICE.
i.d.rom is currently available for purchase by customers.
4. COMPETITION
There are several boutique companies currently offering similar cards
in the United States and Canada. None of these competitors have created a
significant presence in the market. These competitors focus primarily on the
"Digicard" or the "RomCard". The "Digicard" is similar to the i.d.rom except
that it is rectangular in shape, larger than the i.d.rom and has four bumps or
"feet" on the corners to help it operate in the CD disc drive. The Digicard has
been licensed to a number of small boutiques around the world but has been
relatively ineffective in marketing because of technological deficiencies. These
deficiencies include a tendency to break, a tendency to not properly perform
when installed in the disc drive, and its marketed standard capacity of 16MB of
Ram compared to the 30 MB of Ram the i.d.rom can accommodate. The "RomCard" has
recently appeared in Europe but is not competitive with the i.d.rom because of
its pricing and technology.
Amway developed an on-line shopping service in conjunction with
Microsoft which was launched in September 1999 and which utilizes a digital
business card as part of the marketing campaign. Amway's order is currently
being completed by Cinram International Inc. ("Cinram"), Rompus' i.d.rom
manufacturer. The Amway card will refer only to Cinram, and it is intended that
Cinram will direct any inquires for card production to Rompus.
While there is no evidence of this to date, competitors may be able to
devote greater resources to marketing and promotional campaigns, and devote
substantially more resources to card development than the Company. Increased
competition may result in reduced operating margins and loss of market share.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, and competitive pressures faced by the
Company may have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. Further as a strategic response
to changes in the competitive environment, the Company may, from time to time,
make certain service or marketing decisions or acquisitions that could have a
material adverse effect on its business, prospects, financial condition and
results of operations. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company.
5. THE SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has worked with Cinram, a Toronto-based company that
manufactures prerecorded multimedia products. Cinram operates facilities in
Canada, the United States, Europe and Latin America. With market capitalization
of $800 million and fiscal year 1998 operating performance of $42 million in
earnings, on sales of $642 million, Cinram is a dominant global player in
pre-recorded multimedia products and services. Cinram and Rompus have entered
into
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an oral agreement wherein Cinram is the sole global source of Rompus'
i.d.roms. Rompus is obliged to order a minimum of 14 million i.d.roms in
2000, 25.4 million in 2001, and 35.6 million in 2002. Cinram guarantees to
manufacture the initial two molds of the i.d.rom and to provide the
peripheral equipment at its expense.
Rompus currently contracts the pressing of the standard 12cm CD-ROMs to
Cinram, and then has the product cut into the i.d.rom shape by a separate
contractor. This two-step process has been identified as a potential production
bottleneck, and the cutting step contributes significantly to the cost of the
final product. The manufacturing process includes application of a silk-screened
label, in up to four colors, on the disc surface prior to cutting. Cinram has
recently eliminated the cutting step through the development of a new stamping
method. This is expected to reduce production costs by 61% per unit. Recent
negotiations have resulted in a 3-year agreement whereby Cinram will mold
CD-ROMs in the unique i.d.rom shape. Under this agreement, Cinram will produce
this product for Rompus only, and Rompus will use Cinram exclusively for
manufacturing. Cinram will also promote the i.d.rom product world wide through
its network of sales representatives.
6. DEPENDENCE ON A SINGLE OR FEW CUSTOMERS
Not Applicable.
7. THE IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES,
FRANCHISES AND CONCESSIONS HELD
To protect its rights in and to its intellectual property, the Company
relies on a combination of trademarks, copyrights and patents, trade secret
protection, confidentiality agreements, and other contractual arrangements with
its employees, affiliates, clients, strategic partners, and others. The
protective steps it has taken may be inadequate to deter misappropriation of the
Company's proprietary information. The Company may be unable to detect the
unauthorized use of, or to take appropriate steps to enforce, its intellectual
property rights. Rompus has registered certain of its trademarks in the United
States and Canada and has pending U.S. applications for patents on certain of
its proprietary technologies. Effective trademark, copyright, patent, and trade
secret protection may not be available in every country in which it offers or
intends to offer its products. In addition, although the Company believes that
its proprietary rights do not infringe on the intellectual property rights of
others, other parties may assert infringement claims against the Company or
claims that it has violated a patent or infringed a copyright, trademark, or
other proprietary right belonging to them. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources on the Company's part, which could materially adversely
affect the Company's business, results of operations, and financial condition.
The Company incorporates certain licensed third-party technology in some of its
services. In the governing license agreements, the licensors have generally
agreed to defend, indemnify, and hold the Company harmless with respect to any
claim by a third party that the licensed software infringes any patent or other
proprietary right. The Company cannot assure that these provisions will be
adequate to protect it from infringement claims. The loss of, or inability to
obtain or maintain, any of these technology licenses could result in delays in
introduction of new services.
8. GOVERNMENT APPROVAL.
No government approval is required for any of the Company's current
products or services.
9. EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT
REGULATIONS
Other than normal government regulations that any business encounters,
the Company's business is not affected by any government regulations.
10 RESEARCH AND DEVELOPMENT COSTS.
Since the Company began operations it has spent $150,000 on the
research and development of its proprietary technology. The revenues the Company
achieve will be primarily from strategic alliances and direct customer revenues.
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Fees generated, while paying directly for research and technology costs accrued
to date, will also fund the operations of the Company, which includes funding
on-going technological development.
11. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL
LAWS AND REGULATIONS
The Company is not involved in a business which involves the use of
materials in a manufacturing stage where such materials are likely to result in
the violation of any existing environmental rules and/or regulations. Further,
the Company does not own any real property which would lead to liability as a
landowner. Therefore, the Company does not anticipate that there will be any
costs associated with the compliance of environmental laws and regulations.
12. EMPLOYEES
As of the date hereof, the Company employed 26 full-time employees. The
Company hires independent contractors on an "as needed" basis only. The Company
has no collective bargaining agreements with its employees. The Company believes
that its employee relationships are satisfactory. In the long term, the Company
will attempt to hire additional employees as needed based on its growth rate.
13. YEAR 2000
The Company has addressed the Year 2000 ("Y2K") problem by replacing
any non-compliant software. The Y2K problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Y2K problem can affect any modern technology
used by a business in the course of its day. Any machine that uses embedded
computer technology is susceptible to this problem, including, for example,
telephone systems, postage meters, scales, and of course, computers. The impact
on a company is determined to a large extent by the company's dependence on
these technologies to perform its day to day operations.
Internally, the Company has reviewed all such equipment and has
determined that all of its systems are Y2K compliant
The costs of bringing the Company's technology up to Y2K compliance is
less than $5,000. This is because the majority of the "patches" or programs
designed to make software Y2K compliant were obtained over the Internet from
manufacturers for little or no cost and the Company does not expect to rely
heavily on outside consultants to upgrade its systems as most of the work can be
performed in-house.
Externally the Y2K problem may impact other entities with which the
Company transacts business, and the Company cannot predict the impact that the
Y2K challenges such entities face will have on the company. With regard to those
companies that the Company does business with on a daily basis, the Company
cannot guarantee that they will be vigilant about their Y2K plan of action.
ITEM 2 - PROPERTIES
The main office of the Company is located at 2550 Argentia Road, Suite
121, Mississauga, Ontario, L5N 5R1 Canada. The Company leases 6,000 square feet
at this location at the rate of $7,500 per month. The lease expires in August
2001.
ITEM 3 - LEGAL PROCEEDINGS
To the knowledge of management, there is no material litigation pending
or threatened against the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Effective July 30, 1999, the shareholders of the company elected by
majority consent to approve the exchange agreement between the Company and
Rompus-BC and to elect the directors of the Company. The directors of the
Company elected by the shareholders consist of Hugh Mansfield, Shawn Smith, Jeff
Popham and Martin Tiernay. These individuals shall hold the positions of
directors until the next annual meeting of shareholders. No other matters were
submitted to a vote of security holders.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock has traded in the OTC/BB market since
April,1999 as ONLH. On July 30, 1999, the Company changed its symbol to IDCD and
is now trading on the pink sheets.
The following table sets forth the high and low bid prices for the
Company's common stock since its inception as reported in the over-the-counter
market. The prices below also reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent actual transactions:
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High Low High
Quarter ended Ask Bid Bid
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3/31/97 2.50 2.25 2.25
6/30/97 3.63 3.13 3.75
9/30/97 3.88 3.50 3.69
12/31/97 3.13 2.75 2.94
3/31/98 .50 .56 .56
6/30/98 .25 .06 .16
9/30/98 .38 .06 .22
12/31/98 .05 .02 .03
3/31/99 .08 .03 .06
6/30/99 .75 .75 .75
9/30/99 3.00 3.00 3.00
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(b) STOCKHOLDERS
As of December 10, 1999, the Company had approximately 1,023 holders of
Company Common Stock.
(c) DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past
and does not anticipate doing so in the foreseeable future. The Company
currently intends to retain future earnings, if any, to fund the development and
growth of its business.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion contains figures relating to plans,
expectations, future results, performance, events or other matters that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended. When used in the Plan of Operations (see section
below), words such as "estimate", "project", "intend", "expect", "anticipate"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements involve numerous risks and uncertainties
pertaining to technology, development of the
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Company's products, and markets for such products, timing and level of
customer orders, competitive products and pricing, changes in economic
conditions and markets for the Company's products and other risks and
uncertainties. Actual results, performance and events are likely to differ
and may differ materially and adversely. Investors are cautioned not to place
undue reliance on these forward-looking statements which speak only as to the
date of the Plan of Operations, being August 31, 1999, the date of the
Company's last-completed fiscal year. The Company undertakes no obligation to
release or deliver to investors revisions to these forward-looking statements
to reflect events or circumstances after the date of the Plan of Operations,
the occurrence of unanticipated events or other matters. Operational
references refer to the Company's operating subsidiary, Rompus-BC.
(a) PLAN OF OPERATIONS
The Company began operations in February 1998 for the purpose of
developing its multimedia proprietary product: the i.d.rom. The Company has a
limited operating history on which to evaluate its prospects. The risks,
expense, and difficulties encountered by startup companies must be considered
when evaluating the Company's prospects. The Company's plan of operations for
the next twelve months is to further develop its products while seeking
strategic alliances with media and Internet-related companies in order to
demonstrate its technology to companies and consumers. The Company believes that
its existing funds in combination with funds raised in private offerings and the
revenues generated by its operations will be sufficient to fund its operations
for the next twelve months. However, there is no guarantee that the Company will
be able to raise sufficient capital. Additionally, the Company's estimates of
the costs to advertise and market its product might be low. The operating
expenses of the Company cannot be predicted with certainty. They will depend on
several factors, including the amount of marketing expenses, the acceptance of
the Company's products in the market, and competition for such product.
Management may be able to control the timing of development expenses in part by
speeding up or slowing down marketing development and distribution activities
A significant portion of the money recently raised in private
placements of the Company's securities will be used to launch its products
through a variety of sales channels as well as to create a provocative
advertising and public relations campaign. In the first year, $1.8 million has
been allocated to penetrate the market quickly and to capitalize on this limited
window of opportunity.
The Company's forecasted plan of operations for the twelve months
ending August 31, 2000 consist of the following key figures:
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- Revenues totaling $13,782,000
- Costs of Sales $ 6,375,000
- Sales Commissions $ 1,497,000
- Wages and Salaries $ 1,954,000
- Promotion and Advertising $ 825,000
- Research and Development Costs $ 340,000
- Office and General $ 300,000
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(b) FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the Company's
financial condition and results of operations. Detailed information is contained
in the financials included with this document. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
Since inception, the Company has funded its capital requirements by
financing activities, substantially through the sale of its equity securities.
The Company anticipates that revenues generated by orders for the id.rom should
be sufficient to fund the Company's operations over the next 12 months. As the
operating entity, Rompus-
8
<PAGE>
BC, has only recently had operational activities so there is no comparative
period available for analysis by management.
The Company's product, i.d.rom, was launched for marketing purposes in
September 1999 and only limited test marketing was conducted prior to that.
Therefore, the financial statements to August 31, 1999 only reflect some prior
operations, start-up expenses and financing costs. The financial statements for
the next three months will reflect actual operations.
The current sales activity is quite high but has occurred only
recently. The Company is actively seeking additional financing to sustain its
rate of growth of personnel and related infrastructure. The degree of success
and timing of same will dictate whether the Company continues to grow or must
reduce operations in order to live within cash availability and cash generated
by sales. Until this is resolved, management is trying to defer major expenses
while focusing on generating cash through sales.
Sales expectations are excellent and all indicators show that the
forecasted Revenues for the year ending August 31, 2000 should be met and
exceeded. However, the selling cycle has been much longer than anticipated and
the next few months will be critical to the Company's success.
In the meantime, concerted efforts are underway to obtain a financing
commitment, which appears to be forthcoming during the month of December 1999.
Until then, the Company continues to operate as conservatively as possible.
PART II - OTHER INFORMATION
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements that constitute Item 7 are
included at the end of this report beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's former auditor, Barry Hechtman, advised the Company that
they would no longer be able to continue as the Company's auditor because of the
complexities they foresaw in complying with SEC requirements and recommended
that the Company retain a medium-sized accounting firm familiar with such
requirements to take over the Company's audit responsibilities from their firm.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current
directors and executive officers of the Company, the principal offices and
positions with the Company held by each person and the date such person became a
director or executive officer of the Company. The executive officers of the
Company are elected annually by the Board of Directors. Each year the
stockholders elect the board of directors. The executive officers serve terms of
one year or until their death, resignation or removal by the Board of Directors.
There was no arrangement or understanding between any executive officer and any
other person pursuant to which any person was elected as an executive officer.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- -------------- ------------------------
<S> <C> <C>
9
<PAGE>
Hugh Mansfield 37 Chairman of the Board
Shawn Smith 34 Chief Executive Officer, Director
John Drewry 61 Chief Financial Officer
Jeff Popham 33 Director
Martin Tiernay 38 Director
</TABLE>
MR. HUGH MANSFIELD - CHAIRMAN OF THE BOARD. Mr. Mansfield joined the Company as
a director in August, 1999. Mr. Mansfield is the owner of Mansfield
Communications, a public relations agency he formed in 1994. Mr. Mansfield
specializes in creating media awareness for corporations throughout North
America. Mr. Mansfield received his Political Science degree from York
University in 1987.
MR. SHAWN SMITH - CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Smith joined the
Company as a Director in August, 1999 and was appointed Chief Executive Officer
in July, 1999. Mr. Smith has over ten years senior executive experience in the
natraceutical business. From September 1998 to June 1, 1999, Mr. Smith served as
Vice President of Muscletech Research and Development. From April 1, 1997 to
September 1998, Mr. Smith was Vice President and General Manager of
Natraceuticals, Inc. From January, 1994 to April 1997, Mr. Smith was Vice
President and General Manger of Visex Inc. He received his degree in economics
from York University in 1987 and completed the Canadian Securities Course in
1988.
MR. JOHN DREWRY, CHIEF FINANCIAL OFFICER. Mr. Drewry joined Rompus in July,
1999. Prior to joining the Company, from 1990 to 1999, Mr. Drewry served as
President of OTEC Software Corporation, which provides executive services to the
technology industry. From 1987 to 1990, Mr. Drewry was President of Thoroughbred
Canada, a U.S. software developer and from 1983 to 1987 was Partner in Charge of
Computer Strategies for an international accounting firm. Mr. Drewry is a Fellow
of the Institute of Chartered Accountants of Ontario and a Certified Management
Consultant.
MR. JEFF POPHAM, DIRECTOR. Mr. Popham joined Rompus-BC in October, 1995,
becoming a Director of Rompus in August, 1999. Prior to joining Rompus, Mr.
Popham worked in real estate development and financing with Pardigm Properties
from 1991 to September, 1995. Mr. Popham received his Bachelors of Science
degree in Economics from the University of Victoria in 1988.
MR. MARTIN TIERNAY, DIRECTOR. Mr. Tiernay joined Rompus-BC as a director in
1999, becoming a Director of Rompus in August, 1999. Mr. Tiernay is currently
the director of global sponsorship for Teleglobe Canada. Mr. Tiernay has held
this position from July, 1999 to the present. Mr. Tiernay worked in the
marketing department of British American Tobacco ("BAT") from August 1996 to
June 1999. Prior to BAT, Mr. Tiernay worked with Imperial Tobacco in Montreal,
from 1986 to 1996. Mr. Tiernay received his Bachelor of Business degree from the
University of Ryerson University of 1995.
(b) COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. As of August 31, 1999, the Company was not a reporting company and its
officers, directors and beneficial owners of 10% or more equity in the Company
were not required to file Forms 3 and 5.
ITEM 10-EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION AND OPTIONS
10
<PAGE>
The Company currently has no operations but is the parent of the
operating company, Rompus-BC. Rompus-BC's operations began in April 1995.
Salary or other benefits or equivalent have been paid to executive officers
of the Company as follows in the fiscal year ended August 31, 1999: Jeff
Popham received $9,792 as a salary; Shawn Smith beneficially through his
private company - $20,000; John Drewry beneficially through his private
company -$10,000. No other salary or benefits, including long term
compensation, has been awarded to any of the executive officers or directors
of the Company or Rompus-BC. The Company did not grant any stock options to
any executive officer or director in the last fiscal year.
(b) EMPLOYMENT AGREEMENTS
There are currently no written employment agreements in effect between
the Company and its executive officers.
(c) COMPENSATION OF DIRECTORS
Directors of the Company do not receive any cash compensation, but are
entitled to reimbursement of their reasonable expenses incurred in attending
directors' meetings. In addition, the Company has granted effective September
24, 1999, options to purchase common stock exercisable from October 15, 1999 to
September 30, 2002 at the price of $.80 per share as follows to its directors
and officers in the following numbers: Hugh Mansfield, 100,000 options; Rocco
Rossi, 100,000 options: Andrew DeFrancesco 200,000 options; Jeff Popham, 50,000
options; Martin Tiernay 100,000 options; Shawn Smith, 200,000 options; and John
Drewry, 200,000 options.
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, as of August 31, 1999, by
(i) each person who is known to the Company to own beneficially more than 5% of
the outstanding Common Stock, (ii) each of the Company's directors and officers,
and (iii) all officers and directors as a group:
The following disclosure is based upon the share ownership as of the
year ended August 31, 1999.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES(1) BENEFICIALLY OWNED
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Yoshiro Higuchi(2) 0 0
Jennie Popham(2) 0 0
Jeff Popham(2,3) 0 0
Cascadian Pacific Holdings Ltd.(2) 0 0
Tracy O'Hara(2) 0 0
Phil Butterfield(2) 0 0
Shawn Smith(2,3) 0 0
Capstral Limited(2) 0 0
Mansfield Communications Inc.(2,3) 0 0
Granitebridge Limited(2) 0 0
Striker Capital Ltd. 600,000 7.9%
Rosehill Capital Holdings Ltd. 500,000 6.6%
Hugh Mansfield(4) 0 0
Martin Tiernay 0 0
All officers and directors 0 0
as a group (5 persons)(3) 0 0
</TABLE>
------------------------------------------------------
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable
11
<PAGE>
within 60 days, are deemed outstanding for purposes of computing the
percentage of the person holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage of any other person.
(2) The following shareholders have been issued Exchangeable Shares of
Rompus-BC. These Exchangeable Shares may be exchanged for Common Stock of the
Company on a one for one basis at the discretion of each shareholder. These
shareholders also hold an equal number of voting Series A Special Voting
Preferred Shares of the Company. Upon the issuance of Common Stock in exchange
for a shareholder's Exchangeable Shares, the Company shall cancel such Preferred
Shares held by the shareholder. The shareholders and the numbers of Exchangeable
Shares/Series A Special Voting Preferred Shares held by them are: Yoshiro
Higuchi, 1,350,000 shares, representing a fully diluted percentage ("fully
diluted") of 8.13%; Jennie Popham and Jeff Popham, and Cascadian Pacific
Holdings Ltd., 3,037,500, fully diluted 18.34%; Tracy O'Hara, 540,000, fully
diluted 3.25%; Phil Butterfield, individually and as trustee for Harry
Butterfield and Oonagh Butterfield, 1,822,500, fully diluted 10.98%; Shawn
Smith, 450,000, fully diluted 2.71%; Capstral Limited, 500,000, fully diluted
3.02%; Mansfield Communications, 450,000, fully diluted 2.71%; 1367114 Ontario
Limited, 350,000;Granitebridge, 425,000, fully diluted 2.56%; John Drewry,
75,000, fully diluted 0.45%.
(3) Hugh Mansfield, Jeff Popham, Martin Tiernay and Shawn Smith are directors of
the Company. Of these individuals, Mr. Mansfield holds 450,000 Exchangeable
Shares of Rompus-BC as the beneficial owner of Mansfield Communications as
referred to in note 2; Mr. Popham owns 1,012,500 and beneficially owns with
Jennie Popham a total of 2,025,000 Exchangeable Shares; and Mr. Smith owns
450,000 Exchangeable Shares. Officers of the Company consist of Mr. Smith as
Chief Executive Officer and John Drewry as Chief Financial Officer. Officers and
directors collectively own a total of 3,562,500 Exchangeable Shares of Rompus-BC
(and an equal number of voting Series A Special Voting Preferred Shares of the
Company) consisting of 21.46% of the stock of the Company on a fully diluted
basis.
(4) Mr. Mansfield does not hold stock individually but has beneficial ownership
of 450,000 through his ownership of Mansfield Communications
ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 15, 1999, Rompus-BC entered into an agreement with Mansfield
Communications wherein Mansfield will provide public relations for the Company
to the financial and investment communities. This agreement requires Rompus to
pay approximately $200,000 to Mansfield in exchange for these services. Mr.
Mansfield is the Chief Executive Officer of Mansfield Communications and is the
majority shareholder of Mansfield Communications. In all matters regarding
agreements between the companies, Mr. Mansfield has provided a full and complete
disclosure of the various advantages and disadvantages of the transactions and
has disclosed his relationship to the board of directors of Rompus. All prior
agreements were approved by a disinterested majority of the board of directors
of Rompus. It is Mr. Mansfield's intention and that of the Board of Directors
that all future agreements between Mansfield Communications and Rompus will
continue to be the result of arms length negotiations and will be approved by a
disinterested majority of both boards of directors.
The Company's management believes that the terms of these transactions are
no less favorable to the Company than would have been obtained from an
unaffiliated third party in similar transactions. All future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the
disinterested directors.
12
<PAGE>
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Exchange Agreement by and between OnLine Hearing and Rompus-BC Effective
July 30, 1999*
3.1 Articles of Incorporation, dated April 6, 1991*
3.2 Amendment to Articles of Incorporation, dated August 25, 1995*
3.3 Amendment of Articles of Incorporation, dated October 19, 1995*
3.4 Amendment of Articles of Incorporation, dated January 3, 1997*
3.5 Amendment of Articles of Incorporation, dated April 5, 1999*
3.6 Amendment of Articles of Incorporation, dated July 28, 1999*
3.7 Amendment of Articles of Incorporation, dated July 28, 1999*
3.8 Bylaws, dated August 25, 1995*
4.1 Specimen of Common Stock Certificate*
4.2 Specimen of Series A Special Voting Preferred Stock Certificate*
27. Financial Data Schedule
*Incorporated by reference from Registration Statement 10-SB-12GA filed by the
Company on August 16, 1999.
(b) REPORTS ON FORM 8-K
No reports were filed on Form 8-K during the last quarter of the period
covered by this report.
13
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROMPUS INTERACTIVE CORPORATION
By: /s/ Shawn Smith
--------------------------------
Shawn Smith
Its: Chief Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Shawn Smith Chief Executive Officer, December 10, 1999
- ---------------------------- Director
Shawn Smith
/s/ Hugh Mansfield Chairman of the Board December 10, 1999
- ----------------------------
Hugh Mansfield
/s/ John Drewry Chief Financial Officer December 10, 1999
- ----------------------------
John Drewry
/s/ Jeff Popham Director December 10, 1999
- ----------------------------
Jeff Popham
/s/ Martin Tiernay Director December 10, 1999
- ----------------------------
Martin Tiernay
</TABLE>
14
<PAGE>
ROMPUS INTERACTIVE CORP.
(Formerly known as Auto Metriks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
August 31, 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Auditors' Report F-1
Consolidated Statement of Operations F-2
Consolidated Statement of Shareholders' Equity F-3
Consolidated Balance Sheet F-4
Consolidated Statement of Cash Flows F-5
Notes to the Consolidated Financial Statements F-6 - F-14
</TABLE>
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Rompus Interactive Corp.
We have audited the accompanying consolidated balance sheet of Rompus
Interactive Corp., a development stage company, as at August 31, 1999 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for year then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated 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 consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the company
as at August 31, 1999 and the results of its operations and its cash flows for
the year then ended in accordance with generally accepted accounting principles
in the United States.
The comparative figures for 1998 are based upon financial statements which were
reported on by another firm of chartered accountants.
Grant Thornton
(manually signed)
Markham, Canada
December 6, 1999 Chartered Accountants
F-1
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. Dollars) April 4, 1995 to
August 31, 1999
Year Ended August 31 1999 1998 Cumulative
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 41,734 $ 78,777 $ 141,012
Cost of sales 89,579 30,784 148,992
------------ ---------- ------------
Gross margin (47,845) 47,993 (7,980)
------------ ---------- -------------
Expenses
Selling, general and administrative 252,410 41,606 378,630
Depreciation and amortization 13,845 3,239 23,127
Compensation (Note 4(b)(v)) 1,799,982 - 1,799,982
Financing (Note 4(b)(vi)) 1,500,000 - 1,500,000
Foreign exchange loss 17,231 - 17,231
------------ ---------- ------------
3,583,468 44,845 3,718,970
------------ ---------- ------------
Net (loss) income $ (3,631,313) $ 3,148 $ (3,726,950)
============ ========== ============
- -----------------------------------------------------------------------------------------------------
Net (loss) income per share, basic
and fully diluted (Note 1) $ (0.48) $ 0.00
=========== ==========
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Year Ended August 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
(Note 4) (Note 4) (Note 4)
Common Stock Exchangeable Shares Preferred shares Contributed Subscription Total
Shares Amount Shares Amount Shares Amount Surplus Deficit Receivable Equity
------ ------ ------ ------ ------ ------ ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 31, 1997 100 $ 64 - $ - - $ - $ - $ (98,785) $ - $ (98,721)
Net income 1998 - - - - - - - 3,148 - 3,148
---------- --------- --------- --------- -------- ------- -------- --------- --------- ---------
August 31, 1998 * 6,750,000 64 - - - - - (95,637) - (95,573)
Exercise of options
(Note 4(b)(v)) 2,250,000 1,800,000 - - - - - - - 1,800,000
Share exchange
(Note 4(b)(vii)) (9,000,000)(1,800,064) 9,000,000 1,800,064 - - - - - -
Share issue
(Note 4(b)(vi),
(viii)) 4,500,000 3,600,000 - - - - - - (1,388,010) 2,211,990
Share issue costs - (168,917) - - - - - - - (168,917)
Reclassification of
common stock
(Note 1, 4(a)(iv),
(v),(vi)) 3,101,573 (3,430,323) (9,000,000) (1,800,064) 9,000,000 900 5,229,487 - - -
Net loss 1999 - - - - - - - (3,631,313) -(3,631,313)
--------- ---------- --------- --------- --------- ------- --------- --------- --------- ---------
August 31, 1999 7,601,573 $ 760 - $ - 9,000,000 $ 900 $5,229,487 $(3,726,950) $(1,388,010)$ 116,187
========= ========== ========= ========= ======== ======= ========= ========== ========== ========
* After giving retroactive effect to all splits which occurred during the 1999
fiscal period (Note 4).
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
August 31 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 494,614 $ 29,261
Accounts receivable 26,224 4,645
Work in process 10,147 -
Prepaids 18,680 -
Refundable investment tax credits 4,646 24,129
----------- -----------
554,311 58,035
Capital assets (Note 2) 34,354 7,652
Other assets 5,478 -
----------- -----------
$ 594,143 $ 65,687
=========== ===========
- -------------------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 3) $ 311,758 $ 6,707
Due to related parties (Note 7) 166,198 154,553
----------- -----------
477,956 161,260
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock (Note 4) 900 -
Common stock (Note 4) 760 64
Contributed surplus 5,229,487 -
Subscription receivable (1,388,010) -
Deficit (3,726,950) (95,637)
----------- -----------
116,187 (95,573)
----------- -----------
$ 594,143 $ 65,687
=========== ===========
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
Year Ended August 31 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from (applied to)
OPERATING
Net (loss) income $ (3,631,313) $ 3,148
Depreciation and amortization 13,845 3,239
Compensation expense 1,799,982 -
Financing expense 1,500,000 -
--------- -----------
(317,486) 6,387
Changes in
Receivables (21,579) (2,208)
Work in process (10,147) -
Prepaid expenses (18,680) -
Accounts payable and accrued liabilities 305,051 (7,214)
Refundable investment tax credits 19,483 2,985
------------ -----------
(43,358) (50)
------------ -----------
FINANCING
Issuance of shares for cash 712,008 -
Share issue costs (168,917) -
Advances from related parties 11,645 31,837
------------ -----------
554,736 31,837
------------ -----------
INVESTING
Purchase of other assets (5,478) -
Purchase of capital assets (40,547) (3,448)
------------ ------------
(46,025) (3,448)
------------ -----------
Net increase in cash and cash equivalents
during the year 465,353 28,339
Cash and cash equivalents, beginning of year 29,261 922
------------ -----------
Cash and cash equivalents, end of year $ 494,614 $ 29,261
============ ===========
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
NATURE OF BUSINESS
Rompus Interactive Corp. ("Rompus" or the "Company"), organized under the laws
of the State of Florida, is engaged in the business of selling "Net-connected"
CD-ROMS as well as in the scientific research and experimental development (SR &
ED) efforts to create and improve such products. The Company conducts its
operations through a wholly owned subsidiary, Rompus CD-ROM Production Ltd.
("Rompus-BC") located in Mississauga, Ontario, Canada. The CD-ROM market is
global in nature, and Rompus-BC presently sells products in the United States
and Canada.
The Company is considered to be in the development stage and the accompanying
financial statements represent those of a development stage enterprise, and
therefore, is subject to the usual business risks of development stage
companies.
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The Company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in the U.S.A. The financial
statements are prepared using United States dollars.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Rompus and its
wholly owned subsidiary, Rompus-BC.
On July 30, 1999, Rompus, a non-operating public company with 16,601,573 Common
shares outstanding and immaterial net assets, acquired 100% of the outstanding
common stock of Rompus-BC from various shareholders (the Acquisition). The
Acquisition resulted in the owners and management of Rompus-BC having effective
control of the combined entity.
Under generally accepted accounting principles, the Acquisition is considered to
be a capital transaction in substance, rather than a business combination. That
is, the Acquisition is equivalent to the issuance of stock by Rompus-BC for the
net monetary assets of Rompus, accompanied by a recapitalization, and is
accounted for as a change in capital structure. Accordingly, the accounting for
the Acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill is recorded. Under reverse takeover accounting, the post
reverse-acquisition comparative historical financial statements of the "legal
acquirer" (Rompus), are those of the "legal acquiree" (Rompus-BC) (i.e. the
"accounting acquirer").
F-6
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accordingly, the consolidated financial statements of Rompus as at August 31,
1999 and August 31, 1998, and for the fiscal years then ended, are the
historical financial statements of Rompus-BC for the same periods adjusted for
the following transactions contained in the Share Exchange Agreement executed at
the consummation of the Acquisition. The basic structure and terms of the
Acquisition, together with the applicable accounting effects, is as follows:
- - Rompus acquired all of the outstanding shares of Common stock of Rompus-BC
from various shareholders in exchange for 4,500,000 shares of newly issued
Common stock of Rompus and 9,000,000 shares of newly issued Preferred stock
of Rompus. The 9,000,000 Preferred shares will eventually be cancelled as
the outstanding Exchangeable shares of Rompus-BC are exchanged for Common
shares of Rompus. The Common stock and Preferred stock exchange, in addition
to the existing Rompus shares outstanding, collectively resulted in the
recapitalization of the Company. Loss per share calculations include the
Company's change in capital structure for all periods presented.
The company incurred $168,917 of costs related to the acquisition. These costs
were recorded as reductions in shareholders' equity in connection with the
reclassification of equity resulting from the recapitalization.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported revenues and expenses during the
reporting period. Actual results could differ from those estimates.
WORK IN PROCESS
Work in process is valued at the lower of cost and net realizable value.
DEPRECIATION
Rates of depreciation are applied to write off the cost of capital assets less
estimated salvage value over their estimated useful lives. Furniture and
equipment are depreciated on the diminishing balance basis at 20% per year.
Computer equipment is depreciated on the diminishing balance basis at 50% per
year. Computer software is depreciated on the straight line basis over two (2)
years. Leasehold improvements are depreciated on the straight line basis over
the term of the lease.
REVENUE RECOGNITION
Revenue is recognized at the time of shipment of the product to the customer.
F-7
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's estimate of the fair value of cash, receivables, payables and
accruals approximates the carrying value.
INCOME TAXES
The Company accounts for its income taxes under the liability method specified
by Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR
INCOME TAXES. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
LOSS PER SHARE
The Company reports earnings per share in accordance with the provisions of SFAS
No. 128, EARNINGS PER SHARE. SFAS No. 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shares by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock.
The following are the basic and fully diluted earnings per share calculations
for the periods presented:
<TABLE>
<CAPTION>
AUGUST 31, August 31,
1999 1998
---- ----
<S> <C> <C>
Net (Loss) income $ (3,631,313) $ 3,148
=============== =============
Basic weighted average shares outstanding 7,601,573 7,601,573
=============== =============
Basic net (loss) income per Common share $ (0.48) $ 0.00
=============== =============
</TABLE>
At August 31, 1999, there were 9,000,000 Exchangeable shares of Rompus-BC
outstanding. Each of these Exchangeable shares is exchangeable for one Common
share of Rompus. These shares were not included in the computation of diluted
earnings per share because to do so would be antidilutive.
F-8
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- ----------------------------------------------------------------------------------------
2. CAPITAL ASSETS 1999 1998
---- ----
<S> <C> <C>
COST
Furniture and equipment $ 12,075 $ 1,165
Computer equipment 37,374 14,381
Computer software 7,700 1,572
Leasehold improvements 516 -
----------- -----------
57,665 17,118
----------- -----------
ACCUMULATED DEPRECIATION
Furniture and equipment 1,703 472
Computer equipment 16,972 8,067
Computer software 4,636 927
Leasehold improvements - -
----------- -----------
23,311 9,466
----------- -----------
NET BOOK VALUE
Furniture and equipment 10,372 693
Computer equipment 20,402 6,314
Computer software 3,064 645
Leasehold improvements 516 -
----------- -----------
$ 34,354 $ 7,652
=========== ===========
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1999 1998
---- ----
<S> <C> <C>
Accounts payable
Trade $ 91,628 $ 6,707
Underwriter commission 133,500 -
Affiliated companies 32,510 -
----------- -----------
257,638 6,707
Accrued liabilities
Professional fees 54,120 -
----------- -----------
$ 311,758 $ 6,707
=========== ===========
</TABLE>
F-9
<PAGE>
==============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
4. CAPITAL STOCK
<TABLE>
<CAPTION>
CAPITAL STOCK 1999 1998
---- ----
<S> <C> <C>
Authorized
80,000,000 Common shares with a par value of $0.0001
20,000,000 Preferred shares with a par value of $0.0001
(of which 9,000,000 are Series A Special Voting
Preferred shares).
Issued
9,000,000 Series A Special Voting Preferred shares $ 900 $ -
7,601,573 Common shares (1998 - 18,021,064) 760 64
---------- ---------
$ 1,660 $ 64
========== =========
</TABLE>
(a) ROMPUS INTERACTIVE CORP.
i) On April 6, 1999, a 1:30 reverse stock split decreased the issued Common
shares to 601,573 from 18,021,064. No fractional shares were issued and
fractions were rounded up to the next full share.
ii) On May 17, 1999, 6,000,000 Common shares were issued to a supplier of the
Company in exchange for a non-exclusive license to sell and distribute
its products and services. Also, 3,000,000 common shares were issued to
the company's management for services rendered. On July 30, 1999, the
9,000,000 Common shares issued on May 17, 1999 were cancelled and
returned to the company as part of the Acquisition (Note 1).
iii) On May 17, 1999, there was a Reg. D Rule 504 Offering of 7,000,000 shares
with a market value of $0.01 per share. The shares were issued at a price
of $0.01 for total proceeds of $70,000. This offering effects Rompus
before the Acquisition and is included in the reclassification of Common
stock.
iv) On July 30, 1999, the Company issued 4,500,000 Common shares to the
holders of the Common shares of Rompus-BC in exchange for their 4,500,000
Common shares of Rompus-BC as part of the Acquisition (Note 1).
v) On July, 30, 1999, the Company also issued 9,000,000 Series A Special
Voting Preferred shares to the holders of the Exchangeable shares of
Rompus-BC as part of the Acquisition (Note 1). The Series A Special
Voting Preferred shares have no rights to any dividends or any
distribution of any of the Company's property upon any liquidation,
dissolution or winding-up. Upon the issuance of Common stock in exchange
for a shareholder's Exchangeable shares of Rompus-BC (see Note 4(b)(iv),
the Company shall cancel the Preferred stock held by the shareholder.
vi) On July 30, 1999, the Company cancelled 4,500,000 Common shares as part
of the Acquisition (Note1).
F-10
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
4. CAPITAL STOCK (CONTINUED)
(b) ROMPUS CD-ROM PRODUCTION LTD.
The following capital stock transactions occurred in the subsidiary (Rompus-BC)
during the year:
i) On March 26, 1999, a 10,000:1 stock split increased the issued Class "A"
Common shares without par value to 1,000,000.
ii) On April 15, 1999, Rompus-BC renamed the Class "A" Common shares without
par value, of which 100 were fully allotted and issued, "Common shares
without par value". All authorized Class "B" and "C" Common shares and
the 12% non-cumulative, non-voting redeemable Preferred shares were
cancelled, none of which were allotted or issued, and the authorized
capital of Rompus-BC was increased to 100,000,000 Common shares without
par value.
iii) On July 26, 1999, a 6.75:1 stock split increased the issued Common shares
without par value to 6,750,000.
iv) On July 27, 1999, Rompus-BC increased the authorized capital to
109,000,000 shares consisting of 100,000,000 Common shares without par
value and 9,000,000 Exchangeable non-voting shares without par value by
creating 9,000,000 Exchangeable non-voting shares without par value and
with certain special rights and restrictions. These Exchangeable shares
are entitled to dividends in priority to the Common shares of Rompus-BC.
They are redeemable and retractable.
v) On July 28, 1999, Rompus-BC granted 2,250,000 options to purchase Common
shares without par value to various management personnel. These options
were exercisable at $0.000008 per share, have a market value of $0.80 per
share and expire December 31, 1999. All options were exercised on July
28, 1999. All shares issued upon the exercise of these options have been
recorded at the market value of $0.80 per share at total proceeds of
$1,800,000 which resulted in a market value adjustment of $1,799,982
which is recorded in the statement of operations as compensation
expenses.
vi) On July 28, 1999, Rompus-BC issued 2,000,000 Common shares in exchange
for a $100,000 debenture. These shares have a market value of $0.80 per
share and were recorded at $1,600,000 which resulted in a market
adjustment of $1,500,000 which was recorded in the statement of
operations as financing expenses.
vii) On July 29, 1999, Rompus-BC issued 9,000,000 Exchangeable shares in
exchange for 9,000,000 Common shares outstanding as at that date.
F-11
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
4. CAPITAL STOCK (CONTINUED)
viii) On July 29, 1999, Rompus-BC completed the issue and sale of 2,500,000
Common shares at $0.80 per share for total proceeds of $2,000,000. The
proceeds have been fully allocated, based on the offering price, to share
capital.
ix) As at July 30, 1999, immediately before the Acquisition, Rompus-BC had
4,500,000 Common shares allotted and issued and 9,000,000 Exchangeable
shares allotted and issued.
- -------------------------------------------------------------------------------
5. COMMITMENTS
i) In July 1999, the Company issued a letter of intent to lease certain
facilities under an operating lease that expires in August 2001. The
lease commencement date is to be upon completion of leasehold
improvements. Minimum future rental payments, exclusive of operating
payments, under the lease as of August 31, 1999 are:
<TABLE>
<S> <C>
2000 $ 50,538
2001 58,350
---------
$ 108,888
=========
</TABLE>
ii) The Company has entered into a verbal agreement with a company owned by
the Chairman of the Board to provide public relations services during
1999 and 2000 totalling $200,000. As disclosed in Note 6, $14,528 of this
agreement was paid during the current fiscal year.
- -------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
During the year, the Company made the following expenditures to related parties:
- 5 months rent for office space totalling $3,915, (1998 - $Nil) was
paid to a company owned by the Chairman of the Board.
- Consulting/management fees totalling $14,528, (1998 - $Nil) were paid
to a company owned by the Chairman of the Board.
- Consulting/management fees totalling $20,000, (1998 - $Nil) were paid
to a company owned by the President of the company.
- Consulting/management fees totalling $10,000, (1998 - $Nil), were paid
to a company owned by the Chief Financial Officer.
These transactions occurred under terms and conditions reflecting prevailing
market conditions.
Refer to Notes 3 and 7 for details of amounts owing to related parties.
F-12
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. DUE TO RELATED PARTIES 1999 1998
---- ----
<S> <C> <C>
Due to shareholder $ 812 $ 1,976
Due to shareholder 450 1,271
Due to shareholder 164,936 151,306
----------- -----------
$ 166,198 $ 154,553
=========== ===========
</TABLE>
The due to related parties are unsecured, non-interest bearing and have no fixed
terms of repayment.
- -------------------------------------------------------------------------------
8. INCOME TAXES
The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory tax (benefit) provision $ (1,634,100) $ 1,417
Non-deductible expense 1,485,000 -
Amortization of share issue costs (15,300) -
Tax benefit realized on tax loss carryforward - (1,417)
Other (16,800) -
Increase in valuation allowance 181,200 -
------------ ---------
$ - $ -
============ =========
</TABLE>
Under SFAS No. 109, ACCOUNTING FOR INCOME TAXES, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates.
The tax effect of temporary differences that give rise to deferred income taxes
is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 211,200 $ 30,500
Capital assets 3,000 1,800
Share issue costs 61,200 -
Valuation allowance (275,400) (32,300)
----------- ----------
$ - $ -
=========== ==========
</TABLE>
F-13
<PAGE>
===============================================================================
ROMPUS INTERACTIVE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 1999
- -------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED)
At August 31, 1999, the company had approximately $469,400 of net operating loss
carryforwards which expire as follow:
<TABLE>
<S> <C>
2003 $ 17,600
2004 47,800
2005 2,300
2006 401,700
</TABLE>
- -------------------------------------------------------------------------------
9. UNCERTAINTY DUE TO YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems that use certain dates in 1999 to represent something other than a date.
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 systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
company, including those relating to the efforts of customers, suppliers, or
other third parties will be fully resolved.
- -------------------------------------------------------------------------------
10. INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment.
For the year end August 31, 1999, the company's sales were distributed as
follows:
<TABLE>
<S> <C>
Canada $ 39,634 (1998 - $Nil)
United States $ 2,107 (1998 - $Nil)
</TABLE>
- -------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
On September 24, 1999, the Company granted 1,200,000 options entitling the
holder thereof to purchase one share of Common stock per option, $0.0001 par
value, at an exercise price of $0.80. Each option may be exercised immediately
after the vesting date of October 15, 1999. The expiration date of 1,000,000 of
the options is September 30, 2002 and for the remaining 200,000 the expiration
date is October 14, 2004.
F-14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED BALANCE SHEET AS AT AUGUST 31, 1999 AND
AUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 494,614
<SECURITIES> 0
<RECEIVABLES> 26,224
<ALLOWANCES> 0
<INVENTORY> 10,147
<CURRENT-ASSETS> 554,311
<PP&E> 57,665
<DEPRECIATION> (23,311)
<TOTAL-ASSETS> 594,143
<CURRENT-LIABILITIES> 477,956
<BONDS> 0
0
900
<COMMON> 760
<OTHER-SE> 114,527
<TOTAL-LIABILITY-AND-EQUITY> 591,143
<SALES> 41,734
<TOTAL-REVENUES> 41,734
<CGS> 89,579
<TOTAL-COSTS> 89,579
<OTHER-EXPENSES> 3,583,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,631,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,631,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,631,313)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
