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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, 2000
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)
2200 YONGE STREET, SUITE 1220
TORONTO, ONTARIO, CANADA M4S 2C6
(Address of principal executive offices) (Zip code)
(416) 544-8495
(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, 2000 were $1,996,213.
As of December 12, 2000, Registrant had 9,101,573 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 $7,281,258.40. This calculation is based upon a
price of $0.80 per share, which was the issuance price on the closing of the
last financing completed by the Company on July 13, 2000.
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
Item 2 Description of Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management
Item 12 Certain Relationships and Related Transactions
PART IV
Item 13 Exhibits and Reports on Form 8-K
</TABLE>
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PART I
ITEM 1 - DESCRIPTION OF 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. ("Rompus-BC"), was incorporated under the laws of the province
of British Columbia, Canada, and effective April 20, 2000 was continued under
the laws of the province of Ontario, Canada. 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
Rompus is an e-Marketing services firm that combines business strategy
with technology to create innovative and comprehensive e-Marketing strategies.
Rompus' strategic marketing solutions enable organizations to measurably improve
the effectiveness of their traditional and e-Marketing campaigns. This
integrated offering of comprehensive e-Marketing software and strategic
e-Marketing consulting services allows companies to design, execute and measure
the effectiveness of marketing campaigns that combine innovative online and
traditional marketing strategies and tactics. This integrated approach will
improve the effectiveness of customer acquisition and customer retention and
enhance the performance of marketing budgets. Rompus delivers solutions that
bridge the chasm between broad-based traditional marketing with today's need for
direct, one-to-one digital marketing.
Rompus solves the issue of customer acquisition and retention by
providing a strategic approach to e-Marketing. Rompus' e-Marketing specialists
design and develop the strategies behind effective integrated marketing that
combines traditional marketing activities (direct marketing, public relations,
print and mass media advertising) with multimedia (web, CD-ROM, i.d.rom and
email) campaigns to drastically improve marketing results. These strategies
utilize e-Marketing software products and solutions that deliver accurate return
on investment analysis through refined data techniques. Rompus provides results
for many clients with its integrated approach to strategic e-Marketing, centred
on its defining motto: "Bring the World to Your Website(TM)".
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Rompus supports these solutions with a complete professional marketing
services group that combines Internet technology services with traditional
marketing services such as marketing consulting, creative services, media
planning and database marketing. Rompus provides the essential marketing ideas,
products and services to our clients to build their online businesses.
b. PRINCIPAL PRODUCTS AND SERVICES
Rompus' prime directive is to create "Performance Marketing" solutions
that positively affect the growth of the organizations that the company is
working with. These solutions may include the following:
Integrated Marketing and Creative Strategy
Branding and Positioning
Creative Content Development
Web and Multimedia Design and Production
Data Base Design
Customer Acquisition and Retention Modeling
Tracking, Data Mining and Reporting
The Company utilizes several marketing tools and products to deliver
its' marketing services, both in an interactive and traditional format. Rompus
has developed a leading-edge customer acquisition product named i.d.rom(TM).
which has been a significant contributor to overall sales for the Company. The
i.d.rom(TM) is a quality, cost-effective marketing tool that delivers targeted
customers directly to a company's e-Business web site utilizing net-connected
technology. This is the most effective manner in which to excite an audience as
to one's products and services and deliver them directly to the targeted web
site.
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 plays the multimedia content then connects to the i.d.rom(TM) user
to the intended web site. Marketing via an i.d.rom(TM) allows companies to
increase the return on their marketing investment by displacing other marketing
materials which are non-interactive and can not provide a 3D view of its'
products and services.. 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 through the 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) contains multimedia design and production
produced by Rompus along with specialized, proprietary tracking and reporting
features. These specialized tracking features, along with a proprietary group of
other core technology applications are listed below.
i. 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 are as follows:
1) DOCUMENT ENCRYPTION/PASSWORD DE-ENCRYPTION. Any document
can be encrypted and delivered on an i.d.rom. The user of the i.d.rom 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. This creates
opportunities for the user to provide sensitive information, such as detailed
product specifications, without the danger of
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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 while only the profile of the person whose 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 to be registered as
an exclusive key to a restricted web site. The i.d.rom creates a link to the
secured site, and generates and passes an encrypted password. Unless the i.d.rom
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 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. Data can be made available in real
time to customers, through a password protected web site, or delivered
periodically as the customer requires.
5) DATA MINING AND REPORTING. Rompus has developed the
proprietary ore process to evaluate the impact of all interactive marketing
solutions by data mining the user's activity to determine what is of prime
interest to them when viewing the interactive content. This data is then
delivered o the e-Business once the user links to the site. This is of major
importance when attempting to deliver true one-to-one, closed loop marketing
solutions.
6) I.D.ROM REFERRAL LINK. Every i.d.rom as an animated i.d.rom
logo on its main menu. Mousing over this logo shows the notice to learn more
about i.d.rom and connects the user to i.d.rom.com, the Company's web site.
7) 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.
8) 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.
9) 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 (95/98/2000/NT) and Macintosh platforms.
10) 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.
11) 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
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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.
12) RETURN ON MARKETING INVESTMENT ANALYTICS TOOLSET. Rompus
is in the initial stages of developing, in association with one of its
partners, a web-based analytics reporting toolset that will allow marketing
executives to evaluate in real terms that impact of all dollars spent on
marketing by the firm. This technology is aimed at mid-market organizations who
currently do not have the ability to interpret the effectiveness of the money
they have spent on both traditional and interactive marketing vehicles.
2. DISTRIBUTION
The Company's products and services are distributed directly to
customers, through affiliations with advertising agencies, marketing agencies
and integration specialists.
Rompus markets its products and services through the following
channels:
a. Directly to the Customer- Regional sales
representatives are situated in Canada and the United
States.
b. Value Added Resellers - These groups are located in
Canada, The United States, Europe, South American and
The Far East.
c. Public Relations - Mansfield Communications Inc. has
been retained as Rompus' agency of record for all
public 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).
d. Advertising- Advertising will be focused in select
print mediums along with interactive and digital
tools such as rich email. Rompus will also conduct
select direct marketing campaigns using the
i.d.rom(TM) as the delivery platform.
e. Trade shows and Seminars - The Company will
participate and exhibit in select direct marketing
and e-Business based tradeshows and Seminars.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE.
All Rompus products and services are available for purchase by
customers.
4. COMPETITION
There are several competitors in the e-Marketing space but few that
have adopted the i.d.rom(TM) as a leading-edge marketing tool. This is
considered as a major wedge product for the Company. Competitors in
e-Marketing tend to focus on email as a prime directive or are considered web
production houses whose deliveries are web sites solely. There are few groups
who combine both strategic and implementation abilities and have a sales
force in Canada and the United States. Major advertising agencies have began
to move into the interactive production side of marketing and have primarily
done so through the acquisition of smaller multimedia and web-based firms.
The marketplace is becoming more competitive and pressures on margins are
increasing.
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5. THE SOURCES AND AVAILABILITY OF RAW MATERIALS
Not applicable.
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. Trademarks registered to date are as follows:
i.d.rom(TM)
Bring the World to Your Website(TM)
CDKey(TM)
ROI Marketing Roadmap(TM)
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 achieves will be primarily from strategic alliances and direct
customer revenues. Fees generated, while paying directly for research and
technology costs accrued to date, will also fund the operations of the
Company, which includes funding ongoing technological development.
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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 that 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 23 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 addressed the Year 2000 ("Y2K") problem by replacing any
non-compliant software. The Y2K problem was 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 determined
that all of its systems are Y2K compliant. The cost of bringing the Company's
technology up to Y2K compliance was less than $5,000. This was 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 did not have to rely heavily on outside consultants to upgrade its
systems as most of the work was 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 - DESCRIPTION OF PROPERTIES
The main office of the Company is located at 2200 Yonge Street, Suite
1220, Toronto, Ontario, M4S 2C6 Canada. The Company leases 5,000 square feet at
this location at the rate of $5,573 per month. The lease expires on August 15,
2001. As a condition of the lease, the Company has provided a letter of credit
in favour of the landlord in the amount of $15,400. Rompus has an U.S. office
located at 6033 West Century Blvd., Los Angeles., for which it pays $175 per
month.
ITEM 3 - LEGAL PROCEEDINGS
John Drewry, former Executive Vice-President and acting Chief Financial
Officer, left the employ of the Company in May 2000. Mr. Drewry has filed a
Statement of Claim against the Company alleging breach of his employment
contract and seeking U.S. $175,000 in compensation and seeking a declaratory
judgment concerning certain options and shares of the Company to which Mr.
Drewry believes he is entitled. The Company has filed a Statement of Defence
denying Mr. Drewry's entitlement to any of the relief he has claimed and has
counterclaimed against Mr. Drewry seeking the return of any options or shares
currently held by Mr. Drewry. The Company has pursued settlement discussions
with Mr. Drewry's counsel. The Company's counsel anticipates that the claim and
counterclaim will proceed to the discovery stage early in 2001.
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To the best knowledge of the Company's management, there are no other
material litigation matters pending or threatened against the Company which are
not in the ordinary course of business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 have
been 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 listed on the pink sheets. In 1999, the Company filed through its
sponsoring broker, Sierra Brokerage Services Inc., a Form 211 application in
respect of its common stock with the U.S. National Association of Securities
Dealers Regulation (NASDR) pursuant to SEC Rule 15c2-11. This application is
still pending with the NASDR.
The following table sets forth the high and low closing prices
for the Company's common stock for the indicated quarters as reported in the
over-the-counter market. The prices below also reflect inter-dealer
quotations, without retail mark-up, markdown or commissions and may not
represent actual transactions. As the Company's Form 211 application is still
pending before NASDR, there have been no trades in the Company's common stock
since March 9, 2000.
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High Low
Quarter ended Close Close
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12/31/97 3.563 2.75
3/31/98 3.125 .125
6/30/98 .563 .063
9/30/98 .25 .063
12/31/98 .063 .02
3/31/99 .06 .02
6/30/99 .10 .031
9/30/99 4.50 .10
12/31/99 3.50 2.00
3/31/00 2.875 2.00
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(B) STOCKHOLDERS
As of December 12, 2000, the Company had approximately 1,025 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.
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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 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, 2000, 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.
(a) GENERAL
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 broaden its products and services offerings while
seeking strategic alliances with marketing, CRM and media 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 select portion of the money raised in future 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.
(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 should be sufficient to fund the
Company's operations over the next 12 months.
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The Company's products and services were launched in September 1999 and
with the limited history it is difficult to forecast future growth figures.
Sales of Rompus' products have been moderate to date, with a substantial number
of proposals and activity related to sales opportunities currently being
negotiated.
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, 2001 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 months of January and
February 2001. 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
There have been no changes in or disagreements with the Company's
auditors on any accounting or financial disclosure matters.
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:
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NAME AGE POSITION
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Hugh Mansfield 38 Chairman of the Board
Shawn Smith 35 President & Chief Executive Officer, Director
Jeff Popham 34 Director
Martin Tiernay 39 Director
Roger Rai 31 Director
Rocco Rossi 38 Director
James O'Donnell 63 Director
Andy DeFrancesco 30 Director
</TABLE>
11
<PAGE>
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 - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Smith
joined the Company as a Director in August, 1999 and was appointed President &
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. 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.
MR. ROCCO ROSSI. Mr. Rossi became a director of the Company in January, 2000.
Mr. Rossi is currently the Vice President, Interactive Media of Labatt Breweries
of Canada, a position he has held from 1996 to the present. From 1993 to 1996,
Mr. Rossi acted as Vice President of Strategic Planning & New Media for the
Toronto Star. From 1991 to 1993, he acted as Senior Consultant to the Boston
Consulting Group. From 1991 to 1993, he acted as Vice President of Corporate
Development at Advanced Material Resources. From 1987 to 1991, Mr. Rossi
co-owned Clearview Packaging Inc. Mr. Rossi is a board member of the New Haven
Learning Centre for Children, a founding director of Internet Advertising Bureau
of Canada, an Executive Board Member of the Toronto 2008 Olympic Bidco, and a
former Board member of Bid.Com International. Mr. Rossi received his Bachelor of
Arts, Honours in Political Science from McGill University in 1984 and his Master
of Arts in Politics from Princeton University in 1996.
MR. ROGER RAI. Mr. Rai became a director of the Company in January, 2000. Mr.
Rai is currently Vice-President, Sales and Marketing of Fastvibe. Prior to
that and since at least 1994, Mr. Rai has held various positions at Rogers
Communications in the Wireless and Cable group of companies. His most recent
role was within Rogers ATT where he served as Director, Emerging
Technologies. Mr. Rai graduated from the University of Western Ontario in 1992.
MR. JAMES O'DONNELL. Mr. O'Donnell became a director of the Company in January,
2000. Mr. O'Donnell was the former President of Mackenzie Investment Management
and the former Chairman and Chief Executive Officer of O'Donnell Investment
Management Corp. (now owned by S.V.C. Corp.). He is currently Chairman of Shamee
Corp., a position he has held since 1994.
MR. ANDY DEFRANCESCO. Mr. DeFrancesco became a director of the Company in
January, 2000. Mr. DeFrancesco is currently Chairman of the Board and President
of Internet Sports Network, Inc., a position he has held since March 1999.
Prior to this time, Mr. DeFrancesco was an executive Vice-President at Dominick
& Dominick Securities, Inc.
12
<PAGE>
Canada with responsibility for institutional equity sales and trading, and
sourcing and structuring of equity and debt financing. Prior to joining Dominick
in October, 1997, Mr. DeFrancesco held positions as Manager of Institutional
Trading and Sales from April 1994 to April 1995 and Associate Director,
Corporate Finance from April 1995 to July 1997, at C.M. Oliver & Company
Limited. From March 1993 to March 1994, he served as an associate financial
advisor at Midland Walwyn (now Merrill Lynch Canada). Mr. DeFrancesco received
his Bachelor of Arts in Economics and Politics from the University of Western
Ontario and completed courses with the Canadian Securities Institute.
(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. The Company has inquired of its officers and directors as to the
status of certain filings required under the Securities Exchange Act of 1934
but assumes no responsibility with respect to such filings. The Company's
periodic filings accurately reflect the ownership of the Company's securities.
ITEM 10 - EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION AND OPTIONS
Salary or other benefits or equivalent have been paid to executive
officers of the Company as follows in the fiscal year ended August 31, 2000:
Shawn Smith beneficially through his private company - $89,000; John Drewry
(former Executive Vice-President and acting Chief Financial Officer)
beneficially through his private company - $61,274. 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 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 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 in
the following numbers: Hugh Mansfield, 100,000 options; Rocco Rossi, 100,000
options, which are held by his current employer, Labatt Brewing Company Limited;
Jeff Popham, 50,000 options; Martin Tiernay 100,000 options; and James O'Donnell
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, 2000, 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, 2000.
13
<PAGE>
<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 6.6%
AGF Canadian Growth Equity Fund 600,000 6.6%
Rosehill Capital Holdings Ltd. 500,000 5.5%
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 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) These 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 7.14%;
Jennie Popham and Jeff Popham, and Cascadian Pacific Holdings Ltd., 3,037,500,
fully diluted 16.07%; Tracy O'Hara, 540,000, fully diluted 2.86%; Phil
Butterfield, individually and as trustee for Harry Butterfield and Oonagh
Butterfield, 1,822,500, fully diluted 9.64%; Shawn Smith, 450,000, fully diluted
2.38%; Capstral Limited, 500,000, fully diluted 2.65%; Mansfield Communications,
450,000, fully diluted 2.38%; 1367114 Ontario Limited, 350,000, fully diluted
1.85%; Granitebridge, 425,000, fully diluted 2.33%; John Drewry, 75,000, fully
diluted 0.40%.
(3) Hugh Mansfield, Jeff Popham 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 President & Chief Executive
Officer. Officers and directors collectively own a total of 3,487,500
Exchangeable Shares of Rompus-BC (and an equal number of voting Series A Special
Voting Preferred Shares of the Company) consisting of 18,45% 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
14
<PAGE>
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.
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.
15
<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 CORP.
By: /s/ Shawn Smith
---------------------------------
Shawn Smith
Its: President & Chief Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Shawn Smith President & CEO, December 13, 2000
------------------------------- Director and Principal
Shawn Smith Accounting Officer
/s/ Hugh Mansfield Chairman of the Board December 13, 2000
-----------------------------
Hugh Mansfield
/s/ Jeff Popham Director December 13, 2000
--------------------------------
Jeff Popham
/s/ Martin Tiernay Director December 13, 2000
------------------------------
Martin Tiernay
/s/ Rocco Rossi Director December 13, 2000
---------------------------
Rocco Rossi
/s/ James O'donnell Director December 13, 2000
-------------------------------
James O'Donnell
</TABLE>
16
<PAGE>
ROMPUS INTERACTIVE CORP.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars)
August 31, 2000
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Auditors' Report F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Stockholders' Equity F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Cash Flows F-5
Notes to the Consolidated Financial Statements F-6 - F-19
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Rompus Interactive Corp.
We have audited the accompanying consolidated balance sheets of Rompus
Interactive Corp. (a Florida corporation) and subsidiary as of August 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years ended August 31, 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rompus Interactive
Corp. and subsidiary as at August 31, 2000 and 1999 and the consolidated results
of their operations and their consolidated cash flows for the three years ended
August 31, 2000 in accordance with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the company will continue as a going concern. As discussed in Note 1(j) to the
consolidated financial statements, the company has not established sources of
revenue sufficient to maintain operations and is dependent on its ability to
attract additional financing. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1(j). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Markham, Canada
November 17, 2000 Chartered Accountants
F-1
<PAGE>
================================================================================
<TABLE>
<CAPTION>
ROMPUS INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Year Ended August 31 2000 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 1,996,213 $ 41,734 $ 78,777
Cost of sales 1,568,132 89,579 30,784
----------- ----------- -----------
Gross margin 428,081 (47,845) 47,993
----------- ----------- -----------
Expenses
Selling, general and administrative 2,524,149 252,410 41,606
Depreciation and amortization 47,458 13,845 3,239
Compensation (Note 5(a)(viii)) 2,468,000 1,799,982 --
Financing (Note 5(b)(vi)) -- 1,500,000 --
Interest and bank charges 2,380 -- --
Interest on related party loans 13,300 -- --
Foreign exchange loss 9,756 17,231 --
----------- ----------- -----------
5,065,043 3,583,468 44,845
----------- ----------- -----------
Loss before other income (4,636,962) (3,631,313) --
Other income 40,737 -- --
----------- ----------- -----------
Net loss $(4,596,225) $(3,631,313) $ 3,148
=========== =========== ===========
Net (loss) per share, (Note 1)
Basic $ (0.59) $ (0.48) $ 0.00
=========== =========== ===========
Diluted $ (0.59) $ (0.48) $ 0.00
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Year Ended August 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Note 5) (Note 5) (Note 5)
Common Stock Exchangeable Shares Preferred Shares
-------------------------- -------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
September 1, 1998 6,750,000 $ 64 -- $ -- -- $ --
Exercise of options
(Note 5(b)(v)) 2,250,000 1,800,000 -- -- -- --
Share exchange
(Note 5(b)(vii)) (9,000,000) (1,800,064) 9,000,000 1,800,064 -- --
Share issue
(Note 5(b)(vi),(viii)) 4,500,000 3,600,000 -- -- -- --
Share issue costs -- (168,917) -- -- -- --
Reclassification of
common stock
(Note 1, 5(a)(iv),(v),(vi)) 3,101,573 (3,430,323) (9,000,000) (1,800,064) 9,000,000 900
Net loss 1999 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
August 31, 1999 7,601,573 760 -- -- 9,000,000 900
----------- ----------- ----------- ----------- ----------- -----------
Proceeds from
subscription receivable -- -- -- -- -- --
Share issue (Note 5(a)(vii) 1,500,000 150 -- -- -- --
Share issue costs -- -- -- -- -- --
Options issue (Note 5(a) (viii)
& 10) -- -- -- -- -- --
Imputed interest on related
party loans -- -- -- -- -- --
Net loss 2000 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
August 31, 2000 9,101,573 $ 910 -- $ -- 9,000,000 $ 900
</TABLE>
<TABLE>
<CAPTION>
Contributed Subscription Total
Surplus Deficit Receivable Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
September 1, 1998 $ -- $ (95,637) $ -- $ (95,573)
Exercise of options
(Note 5(b)(v)) -- -- -- 1,800,000
Share exchange
(Note 5(b)(vii)) -- -- -- --
Share issue
(Note 5(b)(vi),(viii)) -- -- (1,388,010) 2,211,990
Share issue costs -- -- -- (168,917)
Reclassification of
common stock
(Note 1, 5(a)(iv),(v),(vi)) 5,229,487 -- -- --
Net loss 1999 -- (3,631,313) -- (3,631,313)
----------- ----------- ----------- -----------
August 31, 1999 5,229,487 (3,726,950) (1,388,010) 116,187
----------- ----------- ----------- -----------
Proceeds from
subscription receivable -- -- 1,388,010 1,388,010
Share issue (Note 5(a)(vii) 1,199,850 -- -- 1,200,000
Share issue costs (75,446) -- -- (75,446)
Options issue (Note 5(a) (viii)
& 10) 2,468,000 -- -- 2,468,000
Imputed interest on related
party loans 13,300 -- -- 13,300
Net loss 2000 -- (4,596,225) -- (4,596,225)
----------- ----------- ----------- -----------
August 31, 2000 $ 8,835,191 $(8,323,175) $ -- $ 513,826
</TABLE>
* After giving retroactive effect to all splits which occurred during the
1999 fiscal period (Note 4).
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
================================================================================
<TABLE>
<CAPTION>
ROMPUS INTERACTIVE CORP.
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
August 31 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 258,038 $ 494,614
Accounts receivable (net of allowance - $12,263,
1999 - $Nil) 548,072 26,224
Inventory 30,438 10,147
Prepaids 13,444 18,680
Refundable investment tax credits -- 4,646
----------- -----------
849,992 554,311
Capital assets (Note 2) 101,327 34,354
Other assets (Note 3) 22,907 5,478
----------- -----------
$ 974,226 $ 594,143
=========== ===========
--------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 4) $ 294,010 $ 311,758
Due to related parties (Note 8) 166,390 166,198
----------- -----------
460,400 477,956
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock (Note 5) 900 900
Common stock (Note 5) 910 760
Contributed surplus 8,835,191 5,229,487
Subscription receivable -- (1,388,010)
Deficit (8,323,175) (3,726,950)
----------- -----------
513,826 116,187
----------- -----------
$ 974,226 $ 594,143
=========== ===========
</TABLE>
--------------------------------------------------------------------------------
On Behalf of the Board
Director Director
----------------------- -------------------------
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
================================================================================
<TABLE>
<CAPTION>
ROMPUS INTERACTIVE CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
Year Ended August 31 2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (applied to)
OPERATING
Net (loss) income $(4,596,225) $(3,631,313) $ 3,148
Depreciation and amortization 47,458 13,845 3,239
Compensation expense 2,468,000 1,799,982 --
Financing expense -- 1,500,000 --
Imputed interest 13,300 -- --
----------- ----------- -----------
(2,067,467) (317,486) 6,387
Changes in
Receivables (521,848) (21,579) (2,208)
Inventory (20,291) (10,147) --
Prepaid expenses 5,236 (18,680) --
Accounts payable and accrued liabilities (17,748) 305,051 (7,214)
Refundable investment tax credits 4,646 19,483 2,985
----------- ----------- -----------
(2,617,472) (43,358) (50)
----------- ----------- -----------
FINANCING
Receipt of subscription receivable 1,388,010 -- --
Issuance of shares for cash 1,200,000 712,008 --
Share issue costs (75,446) (168,917) --
Advances from related parties 192 11,645 31,837
----------- ----------- -----------
2,512,756 554,736 31,837
----------- ----------- -----------
INVESTING
Purchase of other assets (18,299) (5,478) --
Purchase of capital assets (113,561) (40,547) (3,448)
----------- ----------- -----------
(131,860) (46,025) (3,448)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents during the year (236,576) 465,353 28,339
Cash and cash equivalents, beginning of year 494,614 29,261 922
----------- ----------- -----------
Cash and cash equivalents, end of year $ 258,038 $ 494,614 $ 29,261
=========== =========== ===========
</TABLE>
================================================================================
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
NATURE OF BUSINESS
Rompus Interactive Corp. (Rompus) is a Corporation registered in the State of
Florida, USA. Rompus' principal offices are located at 2200 Yonge St., Suite
1220 in Toronto, Ontario, Canada, with a US office located at 6033 West Century
Blvd., Los Angeles.
Rompus is an e-Marketing services firm that combines business strategy with
technology to create innovative and comprehensive e-Marketing strategies.
Rompus' strategic marketing solutions enable organizations to measurably improve
the effectiveness of their traditional and e-Marketing campaigns. This
integrated offering of comprehensive e-Marketing software and strategic
e-Marketing consulting services allow companies to design, execute and measure
the effectiveness of marketing campaigns that combine innovative online and
traditional marketing strategies and tactics. This integrated approach will
improve the effectiveness of customer acquisition and customer retention and
enhance the performance of marketing budgets. Rompus delivers solutions that
bridge the chasm between broad-based traditional marketing with today's need for
direct, one-to-one digital marketing.
Rompus solves the issue of customer acquisition and retention by providing a
strategic approach to e- marketing. Rompus' e-Marketing specialists design and
develop the strategy behind effective integrated marketing that combines
traditional marketing activities (direct marketing, public relations, print and
mass media advertising) with multimedia (web, CD-ROM, i.d.rom(TM)and email)
campaigns to drastically improve marketing results. These strategies utilize
e-Marketing software products and solutions that deliver accurate return on
investment analysis through refined data techniques. Rompus provides results for
many clients with its integrated approach to strategic e-Marketing, centred on
its defining motto: "Bring the World to Your Website(TM)".
Rompus supports these solutions with a complete professional marketing services
group that combines Internet technology services with traditional marketing
services such as marketing consulting, creative services, media planning and
database marketing. Rompus provides the essential marketing ideas, products and
services to our clients to build their online businesses.
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ACCOUNTING PRINCIPLES
The Company's accounting and reporting policies conform to accounting principles
generally accepted in the United States of America. The financial statements are
prepared using United States dollars.
(b) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Rompus and its
wholly owned subsidiary, Rompus CD Production Ltd. (Rompus-ON). Significant
intercompany transactions have been eliminated in consolidation.
F-6
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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-ON from various shareholders (the Acquisition). The
Acquisition resulted in the owners and management of Rompus-ON having effective
control of the combined entity.
Under accounting principles generally accepted in the United States of America,
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-ON 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-ON) (i.e. the accounting acquirer).
Accordingly, the consolidated financial statements of Rompus as at August 31,
1999 are the historical financial statements of Rompus-ON 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-ON
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-ON 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.
(c) FOREIGN CURRENCY TRANSLATION
Foreign currency amounts are remeasured into the functional currency (the
U.S. dollar) at relevant exchange rates. Aggregate transaction gains and
losses are included in the Consolidated Statements of Operations.
F-7
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) INVENTORY
Inventory is valued at the lower of cost and replacement value on a first in
first out basis.
(e) STOCK BASED COMPENSATION
The company accounts for stock options granted under its stock options plan
using APB Opinion 25 for options granted to employees and FAS 123 for options
granted to non-employees.
(f) 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.
(g) ADVERTISING COSTS
Advertising costs are expensed as incurred.
(h) 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.
(i) REVENUE RECOGNITION
Revenue is recognized at the time of shipment of the product to the customer.
(j) 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.
F-8
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) 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, August 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net (loss) income $ (4,596,225) $ (3,631,313) $ 3,148
============= ============= =============
Basic weighted average shares outstanding $ 7,848,148 7,601,573 $ 7,601,573
============= ============= =============
Basic net loss per Common share $ (0.59) $ (0.48) $ 0.00
============= ============= =============
</TABLE>
On September 24, 1999 the Company issued 1,100,000 options under its stock
option plan (Note 10). These options were not included in the computation of
diluted earnings per share because to do so would be antidilutive.
(l) ONGOING OPERATIONS
These financial statements have been prepared on the basis of accounting
principles applicable to a "going concern", which assume that the Company will
continue in operation for the foreseeable future and will be able to realize its
assets and discharge its liabilities in the normal course of operations.
The Company has incurred significant operating losses over the past two fiscal
years. These losses have been financed by the issuance of share capital.
F-9
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has generated significant growth in sales in the current year. The
Company has commenced a plan to reposition the organization as a prime marketing
services and technology group, versus the product-centric focus that has been in
place for the past fiscal year. Sales during the current period and the margins
realized were less than anticipated. As a result, the Company has losses of
$8,323,175 to date. Management has reacted to this reality and embarked upon a
plan to focus on services and technologies that could yield increased sales and
margins. The Company is just beginning to see the benefits of these actions in
the fourth quarter with increased sales and slightly enhanced margins. The
ability of the Company to maintain sales and margin growth is dependent on
management's ability to obtain adequate financing to further develop these
services and technologies.
Management is devoting significant efforts to obtain financing to fund the
continued development of its services and prime analytics technologies.
Management is currently working with several financial groups to obtain
sufficient funding. Management has also embarked in talks with a few target
organizations discussing the potential of merging its operations with these
synergistic groups. All discussions are in their initial stages.
The Company's current operational focus is to concentrate on the closure and
delivery of several large proposals. In addition, prime focus is being given to
the build out of a new mid-market analytics reporting technology that will allow
marketing professionals to assess the impact of their marketing dollars spent on
their overall business performance. This new technology is being developed with
the support of on one of the Company's prime development partners.
These financial statements do not reflect adjustments that would be necessary if
the going concern assumption were not appropriate because management believes
that the action already taken, or planned, will support the validity of the
going concern assumptions used in preparing these financial statements.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2. CAPITAL ASSETS 2000 1999
---- ----
<S> <C> <C>
COST
Furniture and equipment $ 20,995 $ 12,075
Computer equipment 120,509 37,374
Computer software 31,017 7,700
Leasehold improvements - 516
----------- -----------
172,521 57,665
----------- -----------
ACCUMULATED DEPRECIATION
Furniture and equipment 4,827 1,703
Computer equipment 48,956 16,972
Computer software 17,411 4,636
Leasehold improvements - -
----------- -----------
71,194 23,311
----------- -----------
</TABLE>
F-10
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2. CAPITAL ASSETS (CONTINUED) 2000 1999
---- ----
<S> <C> <C>
NET BOOK VALUE
Furniture and equipment 16,168 10,372
Computer equipment 71,553 20,402
Computer software 13,606 3,064
Leasehold improvements - 516
----------- -----------
$ 101,327 $ 34,354
=========== ===========
--------------------------------------------------------------------------------
3. OTHER ASSETS 2000 1999
---- ----
Patents
Cost $ 23,777 $ 5,478
Accumulated amortization 870 -
----------- -----------
Net book value $ 22,907 $ 5,478
=========== ===========
</TABLE>
The patent is being amortized on a straight-line basis over 17 years, being the
estimated life of the patent.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2000 1999
---- ----
<S> <C> <C>
Accounts payable
Trade $ 196,636 $ 91,628
Underwriter commission - 133,500
Affiliated companies - 32,510
Customer deposits 53,855 -
Sales taxes 1,856 -
----------- -----------
252,347 257,638
Accrued liabilities
Professional fees 26,915 54,120
Payroll withholdings and vacation pay 4,748 -
Other 10,000 -
----------- -----------
$ 294,010 $ 311,758
=========== ===========
</TABLE>
F-11
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. CAPITAL STOCK 2000 1999
---- ----
<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 $ 900
9,101,573 Common shares (1999 - 7,601,573) 910 760
---------- ---------
$ 1,810 $ 1,660
========== =========
</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-ON in exchange for their 4,500,000
Common shares of Rompus-ON 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-ON 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-ON, (Note 5(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-12
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
5. CAPITAL STOCK (CONTINUED)
vii) In July 2000, the Company completed the issue and sale of 1,500,000 Common
shares at $0.80 per share for total proceeds of $1,200,000. The proceeds
have been fully allocated, based on the offering price, to equity.
viii) On September 24, 1999, the Company granted 1,100,000 options to purchase
common shares to various employees and non-employees. These options, which
are all outstanding at August 31, 2000, are exercisable at $0.80 per share
and expire September 30, 2002. At the date of granting the related common
shares had a fair market value of $3.00 per share. Contributed surplus of
$2,468,000 has been recorded for the excess of fair market value of the
shares above the exercise price, with a corresponding amount recorded as
compensation expense.
(b) ROMPUS CD-ROM PRODUCTION LTD.
The following capital stock transactions occurred in the subsidiary (Rompus-ON)
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-ON 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-ON 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-ON 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-ON.
They are redeemable and retractable.
v) On July 28, 1999, Rompus-ON 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.
F-13
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
5. CAPITAL STOCK (CONTINUED)
vi) On July 28, 1999, Rompus-ON 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-ON issued 9,000,000 Exchangeable shares in
exchange for 9,000,000 Common shares outstanding as at that date.
viii) On July 29, 1999, Rompus-ON 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-ON had
4,500,000 Common shares allotted and issued and 9,000,000 Exchangeable
shares allotted and issued.
--------------------------------------------------------------------------------
6. COMMITMENTS
i) The Company has entered into agreements to lease its premises and
computer equipment for various periods until 2003. Minimum future
payments under these operating leases are:
<TABLE>
<CAPTION>
<S> <C>
2001 $ 65,605
2002 5,859
2003 5,859
2004 1,277
---------
$ 78,600
=========
</TABLE>
ii) As a condition of the premises lease, the Company has provided a letter
of credit in favour of the landlord in the amount of $15,400.
iii) The Company has entered into a verbal agreement with Mansfield
Communications Inc., a company majority owned by the Chairman of the
Board, to provide public and investor relations services during 1999 and
2000 totalling $200,000. As disclosed in Note 7, $160,088 of this
agreement was paid during the current fiscal year.
F-14
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
During the year, the Company made the following expenditures to related parties:
- Consulting/management fees totalling $88,998, (1999 - $20,000) were paid to
a company owned by the President of the company.
- Consulting/management fees totalling $68,689, (1999 - $10,000), were paid
to a company owned by the former Chief Financial Officer.
- Consulting/management fees totalling $160,088 (1999 - $14,528), were paid
to a company owned by the Chairman of the Board.
These transactions occurred under terms and conditions reflecting prevailing
market conditions.
Refer to Notes 4 and 8 for details of amounts owing to and from related parties.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8. DUE TO RELATED PARTIES 2000 1999
---- ----
<S> <C> <C>
Due to director $ 812 $ 812
Due to director 450 450
Due to director 165,128 164,936
----------- -----------
$ 166,390 $ 166,198
=========== ===========
</TABLE>
The due to related parties are unsecured, non-interest bearing and have no fixed
terms of repayment. Imputed interest of $13,300, calculated as 8.00% of the
average balance outstanding, has been recorded as expense and contributed
surplus.
--------------------------------------------------------------------------------
9. INCOME TAXES
The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Statutory benefit provision $ (2,062,000) $ (1,634,100)
Non-deductible expense 1,110,600 1,485,000
Amortization of share issue costs (20,800) (15,300)
Other 8,000 (16,800)
Increase in valuation allowance 964,200 181,200
------------ ------------
$ - $ -
============ ============
</TABLE>
F-15
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
9. INCOME TAXES (CONTINUED)
Under SFAS No. 109, ACCOUNTING FOR INCOME TAXES, future 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. Future tax assets and
liabilities are measured using enacted tax rates.
The tax effect of temporary differences that give rise to future income taxes is
as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Future tax assets
Net operating loss carryforwards $ 1,175,000 $ 211,200
Capital assets 9,500 3,000
Intangible assets (500) -
Share issue costs 68,000 61,200
Valuation allowance (1,253,000) (275,400)
------------ ---------
$ - $ -
============ =========
</TABLE>
At August 31, 2000, the company had approximately $2,612,715 of net operating
loss carryforwards which expire as follow:
<TABLE>
<CAPTION>
<S> <C>
2003 $ 17,600
2004 47,800
2005 2,300
2006 401,700
2007 2,143,315
</TABLE>
--------------------------------------------------------------------------------
10. COMPENSATION AND PROFESSIONAL SERVICES EXPENSE AND STOCK OPTIONS
Entities that continue to account for stock options using APB Opinion No. 25 are
required to make pro forma disclosures of net income and earnings per share, as
if the fair value based method of accounting defined in SFAS No. 123 had been
applied. Had compensation cost for employees under the stock option plan been
determined based on the fair value of the options at the grant dates consistent
with the method of SFAS No. 123, the Company's net income and diluted earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
Net loss As reported $ 4,596,225
Pro forma $ 4,680,225
Net loss per share, Basic and Diluted As reported $ (0.59)
Pro forma $ (0.60)
</TABLE>
F-16
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
10. COMPENSATION AND PROFESSIONAL SERVICES EXPENSE AND STOCK OPTIONS (CONTINUED)
The Company has a stock option plan accounted for under SFAS No. 123 "Accounting
for Stock-Based Compensation". The plan allows the Company to grant options to
non-employees for consideration for services rendered up to an aggregate of
400,000 common shares. The options, which have a term expiring September 30,
2002, vest October 15, 1999. The exercise price for each option is $0.80 per
share. The standard contains a fair value based method for valuing stock-based
compensation that entities may use, and measures compensation cost at the grant
date based on the fair value of the award. Compensation is then recognized over
the service period, which is usually the vesting period.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants. Expected volatility of 0%; risk free interest rate
of 5.75% and 6.10%; and expected lives of 3 years. The estimated fair value of
each option was determined to be $2.32.
On September 24, 1999 the company issued 400,000 of these options. These options
were recorded as compensation and professional services expense of $2.32 per
option for a total of $928,000.
A summary of the status of the Company's option plans as of August 31, 2000 and
changes during the period ending on that date is represented below:
<TABLE>
<CAPTION>
Weighted Avg.
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding, beginning of period Nil $ 0.00
Granted 1,100,000 $ 0.80
Exercised -
------------
Outstanding, end of period 1,100,000 $ 0.80
============
Options exercisable at period-end 1,100,000
============
Weighted average fair value of options
granted during the period $ 2.32
============
</TABLE>
The following table summarizes information about options outstanding and
exercisable at August 31, 2000:
<TABLE>
<CAPTION>
Range of Number Weighted Avg.
Exercise Outstanding Remaining Weighted Avg.
Prices and Exercisable Contractual Life Exercise Price
------ --------------- ---------------- --------------
<S> <C> <C> <C>
$0.80 1,100,000 2.00 years $ 0.80
</TABLE>
F-17
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
11. INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment.
For the year ended August 31, 2000, the company's sales were distributed as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Canada $ 488,720 (1999 - $39,627)
United States $ 1,500,306 (1999 - $2,107)
Europe $ 5,610 (1999 - $Nil)
Puerto Rico $ 1,577 (1999 - $Nil)
</TABLE>
ASSETS
The Company's tangible assets are all located in Canada.
MAJOR CUSTOMERS
Sales to one customer of the Company represent 36% of the Company's total sales.
MAJOR SUPPLIERS
During the year, the Company had one major supplier for CD reproduction
services. Purchases from that supplier approximated 72% of all such
purchases. The Company has purchased from other suppliers with similar
product quality and terms of sale. Therefore, in the event that procurement
from this vendor was to be interrupted, Management feels that the effect on
the Company would not be adverse.
--------------------------------------------------------------------------------
12. SUBSEQUENT EVENT
Subsequent to the year end, the Company entered an agreement to purchase new
software at an approximate cost of $32,000.
--------------------------------------------------------------------------------
13. CONTINGENCY
The company is defending a legal action for the alleged breach of an employment
contract. The plaintiff is seeking approximately $175,000 U.S. cash, plus
assurances the company will honour certain stock purchase and stock conversion
options allegedly granted. Management feels the claim has no merit. The company
has countered the claim, seeking the return of any options or shares of capital
stock owned by the plaintiff. As the outcome of either the claim or the
counter-claim is not determinable at this time no amount has been provided in
the financial statements.
F-18
<PAGE>
================================================================================
ROMPUS INTERACTIVE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
August 31, 2000
--------------------------------------------------------------------------------
14. FINANCIAL INSTRUMENTS
CREDIT RISK
Credit risk with respect to accounts receivable is limited due to the large
number of customers and their dispersion across both geographical areas and
industry segments.
FOREIGN CURRENCY RISK
The Company operates primarily in U.S. dollars.
FAIR VALUES
The estimated fair value of cash and cash equivalents, accounts receivable,
inventory, prepaids, accounts payable and accrued liabilities approximates
carrying value due to the relatively short term nature of the instruments.
--------------------------------------------------------------------------------
15. FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENTS
FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Subsequent to the issuance of the statement, the Financial
Accounting Standards Board issued SFAS 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133" that deferred the
effective date of SFAS 133 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company does not have derivative instruments so the
Company believes this statement will have no impact on them.
16. FOURTH QUARTER ADJUSTMENTS
Compensation expense of $1,320,000 and Selling, general and administrative
expense of $173,674 included in previous quarters' financial statements have
been reversed in the fourth quarter, with corresponding adjustments to
Contributed surplus and Accounts payable and accrued liabilities respectively.
F-19
