U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GRAND ENTERTAINMENT & MUSIC (G.E.M.) INC.
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(Name of Small Business Issuer as specified in its charter)
FLORIDA 650941045
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4862 Mayfair Ave., Montreal QC, H4V 2E7
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (519) 743-8153
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
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(Title of class)
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
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Introduction
The Company was incorporated as Future Projects II Corp. under the
laws of the State of Florida on June 3, 1997. On February 21,
2000, the Company exchanged 16,000,000 shares of its common stock
for 100% of the issued and outstanding shares of Grand
Entertainment and Music (G.E.M.), Inc. (the "Original GEM")
effectuating a merger and change of control such that the Original
GEM is a wholly-owned subsidiary of the Company. The Original GEM
was incorporated on November 19, 1998 in Canada under the Canada
Business Corporations Act. On February 24, 2000, the Company
amended its Articles of Incorporation to officially change its
name from Future Projects II Corp. to Grand Entertainment & Music
(G.E.M.) Inc. ("GEM" or the "Company".)
Fred Berlin is the President and Chief Executive Officer of the
Company, Emilio Fulcro is its Secretary and Chief Operating
Officer and Peter Stocola is its Treasurer and Chief Financial
Officer. The Company's principal offices are located at 4862
Mayfair Ave., Montreal QC , Canada H4V 2E7 and its telephone
number is (519) 743-8153. All references to the operations of the
Company refer to the operations of the Company and its
Subsidiaries.
The Company is an independent music producer which produces,
promotes and markets music recordings (CD's and Cassettes). The
Company's copyright library consist of a repertoire of over 5,000
titles, covering the field of music; children's songs, pop, urban,
rock and classical titles. Additionally, the Company's studio
produces voice-over commercials for radio and television.
The Company has voluntarily elected to file this Form 10-SB. The
Company thereby intends to facilitate the trading of its common
stock pursuant to Section 15(c) of the Securities Exchange Act of
1934 (the "Exchange Act") and Rule 15c2-11 promulgated thereunder.
If the Company's obligation to file reports pursuant to the
Exchange Act is suspended, the Company has not yet determined
whether or not it will voluntarily file those reports.
Business of the Company
The Company is an independent record production company. Its
business operation consists of three wholly-owned subsidiaries:
160662 Canada, Inc. (HITT Records) - a record production company
that was founded in 1987 by Mr. Berlin. It has been producing
recordings of various artists signed to its own labels as well as
for other independent record companies. The production team at
HITT Records also writes and produces radio and television
commercials, and produces remixes of previously released recorded
music.
2867-0453 Quebec, Inc. (Mint Music International) - a music
company founded by Mr. Fulcro in 1996. Mint Music International
creates and produces various concepts, or themes, in the music
field for alternatively priced markets. Mint Music International
has developed many theme recordings, such as Christmas music such
as "Traditional Christmas", "A Riverdance Christmas"; the Company
<PAGE> 2
has also produced an educational recording, "The Alphabet
Series", in a format of 10 compact discs or cassettes in English
and French (a Spanish version is in production) and other albums
of this type.
3535924 Canada, Inc. (Cherry Production Studios) - a recording
studio founded in 1986 by Mr. Stocola. The facility contains five
recording studios housing equipment for all aspects of recording,
mixing, editing and mastering recordings.
GEM's combined activities encompass all phases of production of
music recordings. The Company distributes its products through
third party distributors, such as Universal One Stop Distribution
of Philadelphia and Popular Records/ V.O.T.U. (Italy). The
Company regularly licenses its products to various companies in
the U.S., Southeast Asia, South America and Europe.
The Company manages its artists by negotiating and overseeing
their contracts; maintaining personnel files including option
notifications, copyrights to their songs; issuing licenses on
their behalf; collecting royalties and paying them. The Company
coordinates the art, photography; prepares label copy, new release
sheets and schedules as well as co-ordinates artist's tours. The
Company negotiates, on behalf of its artists, deals with clubs and
promoters, endorsements, personal appearances, and charitable
requests. The Company provides tour support, public appearances
and publicity tours for its signed artists.
Trademarks
The Company has no registered trademarks.
Employees
Fred Berlin is the President and Chief Executive Officer of the
Company, Emilio Fulcro is its Chief Operating Officer and Director
of Marketing and Sales and Peter Stocola is its Senior Vice
President Engineering and Chief Financial Officer. The Company has
not entered into employment agreements with Messrs. Berlin, Fulcro
or Stocola. The Company will gradually add administrative, sales,
operations and marketing staff to support the expansion plans as
outlined. At the present time, the Company has 7 full-time
employees and 19 part-time employees or contractors.
Industry Background
The Major Labels:
In the $40 billion record business, there are two types of record
companies: the first group, the majors (the "Majors"), such as
Warner Brothers, BMG, Polygram, etc. which sell primarily "pop"
music, and the second group, the independent record companies
(the "Independents") such as Popular Records, TJSB Records Ltd.
and NUMUZIK", which are smaller music sellers usually focused on
a distinct niche audience. A major label is usually distributed
by the recording company itself, or by a subsidiary company owned
by or affiliated with the Major
<PAGE> 3
There are six recording and distribution companies (The "Majors")
which dominate the U.S. music industry, and which manufacture and
distribute over two hundred labels, supplying music wholesalers
and retailers with about 80% of the U.S. market - Warner-Elektra-
Atlantic (WEA); Polygram Group Distribution (PGD); MCA Music
Entertainment; BMG Distribution, Sony Music Entertainment, and
CEMA/UNI Distribution.
The Majors today operate in a similar fashion to film
distributors, rather than production houses, having the
organization and money to take new music to the public, but
little ability to 'create' the music themselves. They buy out
successful independent labels and artist-owned companies, enter
into joint ventures with them, or contract with them for
distribution rights.
The Independent Labels
The Independents are in essence smaller versions of the Majors
and account for the remaining 20% of recorded music sales or
approximately $2 billion per year. They traditionally service
small areas or regions and represent over 2,500 independent
labels. The Independents rely on many small independent
distributors to have their albums sold. Independents' albums are
distributed by nearly 300 independent record distributors.
In the early 1950's, the power center of the music industry
shifted from an alliance of publishing houses and film studios to
record companies. This shift reflected the ascent of records as
the leading source of revenue for the industry. The market was
dominated by a handful of major labels, but dozens of
Independents were carving out successful niches for themselves
which continue until the present time. Companies such as Elektra,
Fantasy, A&M; Motown, Stax, Chess, Sun and Dot had their start
during this period.
The Independents provide the conditions for new sounds to grow
and old 'niche' sounds to flourish. All significant new musical
trends have had their birth in independent record companies and
production houses. From early Independents like Verve,
Specialty, Sun and Stax, to post-rock labels like Rounder, Green
Linnet and Alligator, to more recent upstarts like Sub-Pop,
Epitaph, Tommy Boy and Profile, the Independent story is one of
locating great sounds and packaging them for 'niche' consumption.
The Independents are diverse and span every style from classical
to hip-hop and folk to new age.
The Independents are the major source for new music. It serves as
the R&D laboratory for the Majors. The Independents are
artistically and creatively on the cutting-edge of 'new music',
the fastest-growing segment of the industry today. It includes
everything from rap, urban and ambient to country, jungle and
folk.
Industry Growth
Over the last decade and a half, the music industry experienced
double-digit growth until 1995 when sales growth stopped. This
explosive growth was due, in part, to the change from the vinyl
album to the CD (Compact Disc), which resulted in the greatest
boom period in audio recording history, most of it created by
reselling the same music to the same people in this new format.
Once these consumers purchased all the catalogue items they
wanted, revenue began to plummet. CD sales reached a saturation
<PAGE> 4
point in the U.S. This was felt most acutely at the retail level.
Since 1998, the strong economy has resulted in a new period of
sales growth.
Effect of the Internet
New digital technologies are putting much more control in the
hands of the public, and much less control in the hands of the
Majors. The average consumer today buys his CD with a pre-
arranged mix of 12 to 16 cuts running about the 70 minutes
available on the disc. Half of these cuts are not very good, yet
the consumer still pays, usually between $10.00 to $15.00 for a
CD at retail. The next step will be the 'customized CD'. The
consumer will pay approximately $1.00 per cut and will order
their CD with the mix of songs they want. This CD will end up
costing approximately the same but the consumer purchases 100% of
the music they want, even if the cuts are a mix from different
albums. Another factor is that many artists are considering
abandoning their label affiliations at some point in the future
and making their music products available for sale directly over
the Internet. The impact of the Internet on the music
distribution system will be the elimination of the CD itself.
Digital downloading of music directly to the consumer's storage
medium will ultimately replace the current methodologies for
distributing music to the consumer.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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General
Generally, the two revenue sources that the Company will focus on
are:
Traditional Activity - The Company's traditional business is
producing music recordings for its signed artists, and on a
contract basis for other independent labels and commercials, and
distributing their music through independent distributors.
Internet Related Activity - The Company is creating a Web Portal
that allows consumers to quickly and conveniently preview,
purchase music and download music immediately, at a price
competitive to traditional purchased CDs. The Website allows
customers to make initial purchases through the Company's
catalogue, which is expected to offer a selection of between
5,000 to 10,000 recordings. Management expects that its Internet
Portal will begin to generate immediate additional revenue to the
Company's ongoing operations and ultimately be the Company's main
source of revenue's in the future.
The Company is in the process of developing an Internet Portal web
site (a Portal as used here means an Internet Web Site that is a
conglomeration of web sites which have a commonality of interest:
i.e. independent music companies.) that specializes in the sale of
music. The Company's business strategy is focused on becoming a
leading provider of downloadable music directly to consumers over
the Internet. The Internet Portal is intended to market the
Company's products along with the products of other independent
record companies. Management believes that the Company's Internet
Portal has the potential to become one of the largest music
distribution outlets, representing GEM along with hundreds of
Independents worldwide.
<PAGE> 5
Revenues from the Company's Internet activities will be derived
from two sources: (1) Sale of its own products and the products
of other Independents; and (2) artists and independent labels
will pay the Company fees for (a) exposure on the Portal and the
use of the Company's software, (b) sales commissions for record
sales, and (c) management fees for processing data and payments.
The advantages to the consumer of Internet sales include
convenience, lower prices, large music selections and information
on the artist. Downloadable music can be purchased on-line and
used immediately. It can be more easily managed, carried and
customized than music on physical media. When using the Internet
as the distribution channel, there are none of the costs
associated with distributing physical media, and as a result,
music can be purchased at a lower cost than traditional CDs. An
additional advantage is that CDs may be personalized and tailored
to a customer's individual requirements.
The benefits to artists and Independent Labels include powerful
distribution capability, greater understanding of one's fan base,
significant new media exposure and an infrastructure to support
the payment of royalties. The Company's solution offers global
distribution to artists and Independent Labels, with higher
margins stemming from lower distribution costs. By tracking the
behavior of fans on the Company's Website, the artists get a
clearer insight into who is buying their music, allowing them to
focus their creative and promotional efforts.
The Internet Web Site will be powered by a system called XPS
(Extended Portal System). This technology is proprietary to
Cadnetics, Inc. and GEM is the exclusive licensee of this
technology in the online music business. XPS offers distinct
advantages to the Company's online clients, the independent
producers ("IP'S"). We offer our IP'S the advantages of being
part of a most comprehensive music web site, rivaling any of the
Majors, along with a simplified hands on proprietary approach to
managing their web pages and sales. What this actually means is
that (1) the Company supplies them with their own Web Page on our
site; and (2) the Company gives them software that they install
in their company's local computers that allows them to up date,
up load new products and maintain there individual company's Web
Page locally at their own facilities.
The Company's Website will enable artists and labels worldwide to
easily access a global customer base while providing them with an
integrated means of distributing, promoting and tracking the
sales of their recorded music. Key elements of this development
strategy include (1) aggressively acquiring compelling content
through agreements with independent record labels, owners and
distributors of recording catalogues and artists; and (2)
creating strong brand awareness through off-line and on-line
marketing.
The Company is at the development / production stage of its
Internet Portal. Management is prepared to invest much of the
Company's resources, principally in the first two years, for
online visibility and sales. The Company's current record business
will continue to sustain a large part of these operations. The
Company's management intends to aggressively invest in the
implementation of its Internet marketing strategy.
<PAGE> 6
Company Operations
By using current computer and on-line communications
technologies, the Company expects to establish an industry
presence with minimal traditional overhead. By decentralizing its
staff and infrastructure using an intranet based Wide Area
Network (WAN), the subsidiaries will be linked by central file
servers, communications hubs and core staff to be located at the
Company's main office. This will result in a geographically
distributed organization of employees and independent
contractors, with up-to-the-minute communication and coordination
among manufacturing, distribution, sales, marketing, promotion,
project management, publicity, A&R (artists & repertoire),
comptroller's office, international, business affairs, and
inventory control.
Management intends to reduce the ratio of full time employees per
recording through extensive use of independent contractors
("Contractors"). Management anticipates that it will increase
the number of new releases utilizing Contractors on an "as
needed" basis, with their costs amortized on a per project basis,
thereby reducing the cost per release to the Company. The Company
has incorporated Contractors into the areas of manufacturing,
distribution, sales, marketing, promotion, international
licensing, publicity, business affairs, accounting, and A&R.
These Contractors offer some of the best talent in the Canadian
and U.S. music industry.
The Company will produce recordings by using its own production
facilities to create finished products. The primary focus will be
on artists and recordings able to break into a defined market
niche such as a specific ethnic market, with a crossover
potential to mainstream pop.
The Company believes that the Internet and digital transmission
of music is poised to transform the recording industry. On-line
opportunities for independent labels are multiplying rapidly.
Risk Factors
Management believes that the Company is subject to the following
risks:
Limited Operating History; Development Stage Company. The Company
was only, reorganised in February 21, 2000, and has had a very
limited operating history and has had no significant income. To
date, the Company has been primarily engaged in the development of
its Internet related business plan and the commencement of
business operations on a limited scale. The Company must be
considered to be in its development stage and subject to all the
risks inherent in any newly formed business including the absence
of a significant operating history, lack of market recognition and
limited banking and financial relationships. In addition, the
business plan and operating strategy involves expansion into
businesses and markets that are highly competitive and typified by
well established and better financed companies with a long
established and highly recognised market presence.
Competition. The Company must compete with the Majors,
Independents and other technology companies. Many of the
Company's current and potential competitors in the Internet and
music entertainment businesses may have substantial competitive
advantages namely: longer operating histories; significantly
<PAGE> 7
greater financial, technical and marketing resources; greater
brand name recognition; larger existing customer bases; and more
popular content or artists. Competitors with larger financial
resources may respond more quickly to new or emerging
technologies and changes in customer requirements and to devote
greater resources to the development, promotion, and sale of
their products or services than the Company can.
Dependence on Key Existing and Future Personnel. The success will
depend to a large degree upon the efforts and abilities of the
officers and key management employees. The loss of the services
of one or more of the key employees could have a material adverse
effect on the business prospects and potential earning capacity.
As the business plan is implemented, it will need to recruit and
retain additional management and key employees in virtually all
phases of its operations. There can be no assurances that the
Company will be able to recruit or retain such new employees on
terms suitable to the Company.
Uncertainty of Market Acceptance. Commercial success of the
Company is dependent upon continued market acceptance of its
recordings.
Additional Financing Required - Lack of Traditional Financing
Sources. The Company is pursuing an aggressive growth strategy,
which will require substantially more funding than the Company
has. However, there can be no assurance that all, or any part of
such additional financing will in fact be realized. The Company
may seek such financing from sources such as bank financing or
through the sale of additional debt or equity securities (or a
combination thereof) in future public or private offerings.
However, there can be no assurance that any such financing will in
fact be available to the Company when needed or upon terms
acceptable to the Company. Consequently, should the Company be
unable to secure needed additional financing in the future on a
reasonable basis. the Company may not be able to sustain viable
commercial operations. There can be no assurances that any such
additional financing will be available on terms satisfactory to
the Company, if at all.
Uncertain Ability to Manage Growth. As part of the business
strategy, we intend to pursue rapid growth. The ability to
achieve the planned growth depends upon a number of factors,
including the ability to hire and train management and other
employees, the adequacy of the financial resources, the ability to
identify new markets in which we can successfully compete and the
ability to adapt the purchasing and other systems to accommodate
the expanded operations. In addition, there can be no assurance
that we will be able to achieve the planned expansion or that we
will be able to manage successfully the expanded operations.
Failure to manage growth effectively could adversely affect the
financial condition, results of operations and prospects.
Limited Market for Securities. Although a limited market for the
Common Stock has developed, there is currently no broad and
established public market for the shares and no assurance can be
given that such a market will develop in the future. The current
market price of the shares bears no relationship whatsoever to
assets, earnings, book value, or other objective standards of
worth.
Absence of Dividends on the Common Stock. The Company has not
paid any dividends on any of its shares of Common Stock since the
inception and does not currently anticipate paying dividends on
its Common Stock in the foreseeable future.
<PAGE> 8
Possible Failure to Obtain Listing of Common Stock and Market
Illiquidity. The Company intends to list its Common Stock on the
National Association of Securities Dealers OTC Bulletin Board.
There is no assurance that such a listing will be obtained, and if
it is not obtained, the Common Stock of the Company will continue
to have a limited market. Even if a listing is obtained, there's
no assurance that Common Stock of the Company will have anything
other than a limited market.
Issuance of Additional Shares. The Board of Directors has the
power to issue additional shares without shareholder approval. Any
additional shares issued by the Company below the offering price
in this Offering may have the effect of further diluting the
interest of then current shareholders.
Forward Looking Statements
When used in this Form 10-SB filing, the words "believe",
"should", "would" and similar expressions which are not historical
are intended to identify forward-looking statements that involve
risks and uncertainties. Such statements include, without
limitation, expectations with respect to the results for the next
fiscal year, the Company's beliefs about the record business and
its views about the long-term future of the industry and the
Company. In addition to factors that may be described in the
Company's other Securities and Exchange Commission filings, all
of the Risk Factors described herein could cause the Company's
financial performance to differ materially from that expressed in
any forward-looking statements made by, or on behalf of, the
Company. The Company does not undertake any responsibility to
update the forward-looking statements contained in this Form
10-SB filing.
ITEM 3. DESCRIPTION OF PROPERTY
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The Company's principal offices are located at 4862 Mayfair Ave
Montreal, (QC) Canada H4V2E7. and its telephone number is (514)
328.9348. These facilities, consisting of approximately 1000 sq.
ft., are subject to a 3-year lease for $600.00 per month.
Management believes that the facilities are sufficient to support
the Company's planned operations for the foreseeable future.
The Company's Studio facilities are located at 8530 Champ D'eau,
St Leonard (QC), Canada H1P1Y3. Its telephone number is (514)
328.9348. These facilities, consisting of approximately 2900 sq.
ft., are subject to a 3-year lease for $2,000.00 per month.
Management believes that the facilities are sufficient to support
the Company's planned operations for the foreseeable future.
The Company's second studio facilities are located at 4020 St.
Ambroise, Suite 495, Montreal (QC), Canada H4C2C78. Its telephone
number is (514) 938.8080. These facilities, consisting of
approximately 2400 sq. ft., are subject to a 3-year lease for
$1,100.00 per month. Management believes that the facilities are
sufficient to support the Company's planned operations for the
foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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The following table sets forth the number of shares of our Common
Stock beneficially owned by (i) each person who, as the date
hereof, was known by us to own beneficially more than five percent
<PAGE> 9
(5%) of its Common Stock; (ii) the individual Directors of our
Company and (iii) the Officers and Directors of our Company as a
group. As of the date hereof, there were 17,683,000 common shares
issued and outstanding.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of
Class
<S> <C> <C> <C>
Common Frederick Berlin 4,176,400 common(1) 23.6 %
4862 Mayfair Ave.
Montreal, (QC) Canada
H4V2E7
Common Emilio Fulcro 4,176,400 common(1) 23.6 %
4 De Gaspe,
D.D.O. (QC) Canada
H9B3G8
Common Peter Stocola 4,176,400 common(1) 23.6 %
6147 Point Briand
St Leonard (QC) Canada
H1P1R6
Common Michael Ash (2) 3,470,800 common 19.6 %
Rue de la Promanade
St. Bruno (QC), Canada
Common Officers and Directors 12,529,200 common 70.8 %
as a group (1)
</TABLE>
(1) Through ownership of 3703088 Canada, Inc.
(2) Through ownership of Ashbyrne 2000,Inc.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
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Directors and Executive Officers
The following table sets forth the names and current positions with
our Company held by Directors, Executive Officers and Significant
Employees. There is no immediate family relationship between or
among any of the Directors, Executive Officers or Significant
Employees and our Company is not aware of any arrangement or
understanding between any Director or Executive Officer and any
other person pursuant to which he was elected to his current
position.
Name Age Position with Company
---- --- ---------------------
Fred Berlin 43 President, Chief Executive
Officer and Director
Emilio Fulcro 43 Secretary, Chief Operating
Officer, and Director
Peter Stocola 58 Treasurer, Chief Financial
Officer and Director
<PAGE> 10
Larry Yasgar 34 Director
Magda Bererra 38 Director
Fred Berlin, a co-founder of the Company, has been President,
Chief Executive Officer, and a Director since November 1998. Mr.
Berlin has been connected with the entertainment business as a
performer, a DJ, a Head Sound & Lighting Technician, a producer,
and past partner in Panache Records. He is the owner of HITT
Records and currently manages the Company as well as continuing
his role as scout for new talent and in the production of
merchandise sales.
Emilio Fulcro, a co-founder of the Company, has been Chief
Operating Officer, Director of Marketing and Sales, and Corporate
Director since November, 1998. He has owned Mint Music
International, Inc., a recording studio and graphic design
company, since he established it in 1993. He has produced major
catalogues for Madacy, Sinclair and Direct Source, currently in
use by the Company and is a prized item for the promotion of their
products. Prior to 1993, Mr. Fulcro was Regional Sales Manager of
Les Distributions Madacy Inc., a wholesaler of audiocassettes and
compact discs to retailers such as HMV, Discus and Music World and
wholesalers such as Pindoff Records, Handleman, and Transcanada
Music.
Peter Stocola, a co-founder of the Company, has been Vice
President, Engineering and a Director since November 1998. He
entered the entertainment business as a performer and is a
graduate of the Trebas Institute, where he studied record
engineering. In 1986 he entered into a joint venture with his
brother to develop their sister's musical talent (Costanza,) into
a solo artist and eventually signed Costanza to the duo Boy-Girl?
from 1988 -1990, and had commercial success with the release of
Don't You Want My Love, which went to #1 in Quebec, Canada,
France, Italy, Spain and Germany. He has 4 Platinum and 5 Gold
Records and 3 Ampex Golden Reel Awards to his credit in Canada.
Larry Yasgar, a veteran of the music business, is the President
of Endorfin Records, Inc. From 1990 until 1995, he was Vice
President of A&R for Columbia Records, at which time he was
responsible for developing C&C Music Factory. From 1988 to 1990,
Mr. Yasgar was President of the Vendetta Records Division of A&M
Records. From 1970 to 1988, he was with Atlantic Records,
beginning in national sales and ultimately becoming the head of
promotion for its A&R, national pop and dance products areas.
Magda Bererra has been the Vice-President of The Muzik Firm, New
York N.Y. since January, 1999. During her career, she has worked
primarily in music publishing. From 1996 to 1998, she was
Director of Latin membership for A.S.C.A.P. From 1993 to 1996 she
was Director of Music Publishing for Vedisco Music Publishing.
From 1991 to 1993, she was Music Publishing administrator and A&R
administrator for Sony Discos/RMM Records. From 1980 to 1991, she
was the Publishing/Royalty Manager for Bosey and Hawkes Music.
Ms. Bererra graduated from Jersey State College with a BA. in
Business Administration and Art.
<PAGE> 11
ITEM 6. EXECUTIVE COMPENSATION
------------------------------
The following table shows, for the fiscal year ended April 30,
2000, the cash and other compensation paid to each of the
executive officers of the Company.
<TABLE>
<CAPTION>
Awards Other
Name and Other Restricted Stock
Position Held Year Salary Bonus Compensation Stock Awards
------------- ---- ------ ----- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Fred Berlin, President 2000 -0- -0- -0- -0- -0-
and CEO
Emilio Fulcro, Secretary 2000 -0- -0- -0- -0- -0-
Peter Stocola, Treasurer 2000 -0- -0- -0- -0- -0-
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------------------------------------------------------
The Company was incorporated as Future Projects II Corp. under the
laws of the State of Florida on June 3, 1997. On February 21,
2000, the Company merged with the Original GEM, which was
incorporated on November 19, 1998 in Canada under the Canada
Business Corporations Act. On February 24, 2000 the Company
amended its Articles of Incorporation to officially change its
name from Future Projects II Corp. to Grand Entertainment & Music
(G.E.M.) Inc.
The Original GEM was formed on April 18, 2000, to effectuate the
business combination of 160662 Canada, Inc. (HITT Records), 2867-
0453 Quebec, Inc. (Mint Music International) and 3535924 Canada,
Inc. (Cherry Production Studios) through an exchange of shares
between the respective shareholders and the Original GEM. The
shareholders exchanged the following shares in that transaction:
On January 14, 1999, Fred Berlin exchanged all of his shares of
HITT Records, representing 100% of the company's outstanding
shares, for 375,000 shares of the Original GEM.
On January 14, 1999, Emilio Fulcro exchanged all of his shares of
Mint Music International, representing 100% of the company's
<PAGE> 12
outstanding shares, for 375,000 shares of the Original GEM.
On January 14, 1999, Peter Stacola exchanged all of his shares of
Cherry Production Studios, representing 100% of the company's
outstanding shares, for 375,000 shares of the Original GEM.
On Feburary 21, 2000 the shareholders of the Original GEM
exchanged their shares for 16,000,000 shares of common stock of
Future Projects II Corp.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
---------------------------------------------------------------
The total number of shares which the Company has authority to issue
is 50,000,000 shares of common stock, $.001 par value. A total of
17,683,000 shares of the Common Stock are currently outstanding and
the number of holders of record of our Common Stock is
approximately 11. The holders of Common Stock have one vote per
share on all matters (including election of directors) without
provision for cumulative voting. The Common Stock is not
redeemable and has no conversion or preemptive rights. The Common
Stock currently outstanding is validly issued, fully paid and non-
assessable. The Board of Directors may, from time to time, declare
and our Company may pay dividends on its shares in cash, property
or its own shares, except when our Company is insolvent subject to
the provisions of the Florida Statutes. Our Company has paid no
cash dividends on its Common Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
----------------------------------------------------------------
The Company's Common Stock is listed on the "pink sheets" under
the symbol "GENM." Public trading of the Company's Common Stock
commenced on February 24, 2000 and the market for the Common
stock is limited, sporadic and highly volatile. The following
table sets forth the high and low last closing bid of the Common
Stock for the periods indicated. The information was obtained
from Telescan, Inc. The quotations represent interdealer prices
without retail mark-ups, mark-downs or commissions and do not
represent actual transactions. The following chart shows the
closing prices of the stock since it commenced trading on
February 24, 2000.
Price Range
High Low
------ -------
2000
----
First Quarter $6.00 $1.500
Second Quarter $9.031 $1.125
Third Quarter $5.94 $1.125
<PAGE> 13
On July 18, 2000, the closing price for the Common Stock was
$3.50.
Effective August 11, 1993, the Securities and Exchange Commission
adopted Rule 15g-9, which established the definition of a "penny
stock," for purposes relevant to the Company, as any equity
security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer
approve a person's account for transactions in penny stocks; and
(ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve
a person's account for transactions in penny stocks, the broker
or dealer must (i) obtain financial information and investment
experience and objectives of the person; and (ii) make a
reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating
to the penny stock market, which, in highlight form, (i) sets
forth the basis on which the broker or dealer made the
suitability determination; and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks
of investing in penny stocks in both public offerings and in
secondary trading, and about commissions payable to both the
broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in
the account and information on the limited market in penny
stocks.
The National Association of Securities Dealers, Inc. (the
"NASD"), which administers NASDAQ, has recently made changes in
the criteria for initial listing on the NASDAQ Small Cap market
and for continued listing. For initial listing, a company must
have net tangible assets of $4 million, market capitalization of
$50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years.
For initial listing, the common stock must also have a minimum
bid price of $4 per share. In order to continue to be included on
NASDAQ, a company must maintain $2,000,000 in net tangible assets
and a $1,000,000 market value of its publicly-traded securities.
In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share.
Effective August 11, 1993, the Securities and Exchange Commission
adopted Rule 15g-9, which established the definition of a "penny
stock," for purposes relevant to the Company, as any equity
security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer
approve a person's account for transactions in penny stocks; and
(ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or
dealer must (i) obtain financial information and investment
experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable
for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the
<PAGE> 14
risks of transactions in penny stocks. The broker or dealer must
also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form, (i) sets forth the
basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a
signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of
investing in penny stocks in both public offerings and in secondary
trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in
cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for
the penny stock held in the account and information on the limited
market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD"),
which administers NASDAQ, has recently made changes in the criteria
for initial listing on the NASDAQ Small Cap market and for
continued listing. For initial listing, a company must have net
tangible assets of $4 million, market capitalization of $50 million
or net income of $750,000 in the most recently completed fiscal
year or in two of the last three fiscal years. For initial listing,
the common stock must also have a minimum bid price of $4 per
share. In order to continue to be included on NASDAQ, a company
must maintain $2,000,000 in net tangible assets and a $1,000,000
market value of its publicly-traded securities. In addition,
continued inclusion requires two market-makers and a minimum bid
price of $1.00 per share.
Dividend Policy
The Company has never declared nor paid dividends on its Common
Stock and does not intend to do so in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
-------------------------
The Company is not a party to any pending legal proceedings.
Management is not aware of any legal proceedings pending,
threatened or contemplated, against any of the Company's officers
or directors, respectively, in their capacities as such.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
------------------------------------------------
On Febuary 21, 2000, the Company issued a total of 4,684,000 of its
common shares each to Messrs. Berlin Fulcro and Stocola; a total of
5,128,000 of its common shares to 265 other shareholders in
exchange for all of their shares of Original GEM.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-------------------------------------------------
The Articles of Incorporation limit, to the maximum extent
permitted by the Florida Business Corporation Act, the personal
liability of directors and officers for monetary damages for
breach of their fiduciary duties as directors and officers
<PAGE> 15
(other than liabilities arising from acts or omissions that
involve intentional misconduct, fraud or knowing violations of
law or the payment of distributions in violation of the Florida
Business Corporation Act). The Articles of Incorporation provides
further that the Company shall indemnify, to the fullest extent
permitted by the Florida Business Corporation Act, any person
made a party to an action or proceeding by reason of the fact
that such person was a director, officer, employee or agent of
the Company. Subject to the Articles of Incorporation, the By-
laws provide that the Company shall indemnify directors and
officers for all costs reasonably incurred in connection with any
action, suit or proceeding in which such director or officer is
finally adjudged to have been derelict in the performance of his
duties as such director or officer.
Insofar as indemnification for liabilities arising under the 1933
Act and Securities Exchange Act of 1934, as amended, may be
permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act, and is therefore
unenforceable. In the event that a claim of indemnification
against such liabilities (other than the payment by the Company
of expenses incurred by a Director, officer or controlling person
of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being offered or sold,
the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such case.
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Audited consolidated balance sheet of the Company as of
April 30, 2000, the related consolidated statements of
retained earnings and earnings and changes in financial
position.
(b) Exhibits
3(i)(a) Articles of Incorporation of Grand
Entertainment & Music (G.E.M.) Inc.
3(ii)(a) Bylaws of Grand Entertainment & Music (G.E.M.)
Inc.
5 Tradeability Opinion
10 Agreement for the Exchange of Common Stock by
and between Future Project II Corp. and Grand
Entertainment and Music, Inc.
21 List of Subsidiaries
27 Financial Data Schedule
<PAGE> 16
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 authorize
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/Fred Berlin
-----------------------------------------
Fred Berlin, President, Chief Executive
Officer and Director
Date: July 21, 2000
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/Emilio Fulcro
-----------------------------------------
Emilio Fulcro, Secretary, Chief Operating
Officer, and Director
Date: July 21, 2000
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/Peter Stocola
-----------------------------------------
Peter Stocola, Treasurer, Chief Financial
Officer and Director
Date: July 21, 2000
* Print the name and title of each signing officer under his or
her signature.
<PAGE> 17
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
<PAGE> F-1
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
Table of Contents
Exhibit
Auditors' Report
Consolidated Balance Sheet................................. A
Consolidated Statement of Retained Earnings................ B
Consolidated Statement of Earnings......................... C
Consolidated Statement of Cash Flows....................... D
Notes to Consolidated Financial Statements
<PAGE> F-2
AUDITORS' REPORT
To the Shareholders of
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
We have audited the consolidated balance sheet of GRAND
ENTERTAINMENT & MUSIC G.E.M. INC. (formerly Future
Projects II Corp.) as at April 30, 2000 and the
consolidated statements of retained earnings, earnings
and changes in financial position for the period then
ended. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with U.S. generally
accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
consolidated financial statement presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the Company as at April 30, 2000 and the
results of its operations and the changes in financial
position for the period then ended in accordance with
U.S. generally accounting principles.
CHARTERED ACCOUNTANTS
Montreal, Quebec
July 20, 2000
<PAGE> F-3
Exhibit A
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED BALANCE SHEET
As at April 30, 2000
ASSETS
US Dollars
----------
$
CURRENT
Accounts receivable 187,546
Record masters and preproduction costs
(notes 1 and 2) 616,821
-------
804,367
CAPITAL ASSETS (notes 1 and 3) 161,573
(Net of accumulated amortization of $97,024)
WEBSITE DEVELOPMENT COSTS (note 1) 21,890
-------
987,830
=======
LIABILITIES
CURRENT
Bank demand loan (note 4) 20,220
Accounts payable and accrued liabilities 98,401
Current portion of government loan payable (note 1) 13,702
-------
132,323
GOVERNMENT LOAN PAYABLE (note 1) 67,876
FUTURE INCOME TAXES PAYABLE (note 5) 44,771
-------
244,970
-------
STOCKHOLDER'S EQUITY (NOTE 6)
Common stock, $.001 par value
authorized 50,000,000 shares issued
and outstanding at April 30, 2000
17,683,000 shares 17,683
Additional paid-in capital 715,300
RETAINED EARNINGS 9,877
-------
742,860
-------
987,830
=======
See Accompanying notes
Approved on behalf of the board:
/s/_____________________________ Director - President
<PAGE> F-4
Exhibit B
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
For the two months and eight days ended April 30, 2000
US Dollars
$
----------
Deficit - beginning of period (2,000)
Net earnings 11,877
------
RETAINED EARNINGS - END OF PERIOD 9,877
======
See Accompanying notes
<PAGE> F-5
Exhibit C
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED STATEMENT OF EARNINGS
For the two months and eight days ended April 30, 2000
US Dollars
$
----------
REVENUE 41,589
COST OF SALES 7,688
----------
GROSS PROFIT 33,901
----------
EXPENSES
Travel, promotion and advertising 9,172
Office, telephone and rent 1,665
Taxes and licenses 811
Professional fees 1,545
Insurance 24
Interest and bank charges 398
Amortization of capital assets 2,290
----------
15,905
----------
Earnings before provision for income taxes 17,996
PROVISION FOR INCOME TAXES
Future income taxes (note 5) 6,119
----------
NET EARNINGS 11,877
==========
NET EARNINGS PER SHARE .0007
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 17,683,000
==========
See Accompanying notes
<PAGE> F-6
Exhibit D
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the two months and eight days ended April 30, 2000
US Dollars
$
----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period 11,877
Add (deduct) non-cash items:
Amortization 2,290
Future income taxes (43,446)
Net changes in non-cash working capital:
Accounts receivable (22,364)
Record masters and preproduction costs (75,224)
Accounts payable and accrued liabilities 11,084
Current portion of government loan payable 8,437
----------
Net cash used in operating activities (107,346)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of wholly-owned subsidiary (730,983)
Purchase of capital assets (14,809)
Website development costs (21,890)
----------
Net cash used in investing activities (767,682)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock 16,000
Increase in additional paid-in capital 714,983
----------
Net cash provided by financing activities 730,983
----------
DECREASE IN CASH (144,045)
Cash - beginning of period 123,825
----------
BANK INDEBTEDNESS - END OF PERIOD (20,220)
==========
See Accompanying notes
<PAGE> F-7
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
1. ACCOUNTING POLICIES
a) History and Organization of the Company
The Company was organized June 3, 1997, under the laws of the state
of Florida as Future Projects II, Corp.
On June 3, 1997, the Company issued 5,000,000 shares of its $.001 par
value common stock for services of $2,000.
On February 21, 2000, the Company cancelled 3,317,000 shares of its
$.001 par value common stock and on the same day issued 16,000,000
shares of its $.001 par value common stock in exchange for 100% of
all the issued and outstanding shares of Grand Entertainment & Music
G.E.M. Inc. (Canada).
On March 7, 2000, the Company changed its name from Future Projects
II, Corp. to Grand Entertainment & Music G.E.M. Inc.
b) Principle of the Consolidated Financial Statements
The consolidated financial statements include the accounts of:
Grand Entertainment & Music G.E.M. Inc. (formerly Future Projects Ii
Corp.)
Grand Entertainment & Music G.E.M. Inc. (Canada)
160662 Canada Inc. (Hitt Records)
2867-0453 Quebec Inc. (Mint Music International)
3535924 Canada Inc. (Cherry Studio Productions)
All interCompany transactions and accounts have been eliminated in
consolidation.
c) Accounts Receivable
Management believes that all accounts receivable as of April 30, 2000
were fully collectible; therefore, no allowance for doubtful accounts
were recorded.
d) Revenue Recognition
Revenue is derived from sale of distribution rights, publishing
rights and equity in production and records sales. Revenue is
recognized as earned when the records are completed and delivered,
when amounts are due from the exhibitor and when a contract is
secured that irrevocably transfers distribution rights, or publishing
rights to a licensee or equity to an investor, and there is
reasonable assurance of collectability of proceeds.
<PAGE> F-8
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
1. ACCOUNTING POLICIES (Cont'd)
e) Record Masters and Preproduction Costs
Adaption of Statement of Accounting Standard No. 50
In November 1981, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 50,
"Financial reporting in the Record and Music Industry" (SFAS 50).
SFAS 50 accounts for record masters and preproductions costs as
follows:
Record masters represents the unamortized costs of the record
masters which have been produced by the Company. Such costs include
all production, print and advertising costs which are expected to be
recovered from future revenues, net of estimated future liabilities
related to the product. The Company also has interest in record
masters that are fully amortized, the values of which have not been
reflected in the consolidated financial statements.
Amortization is determined based on the ratio of current revenues
earned from the record masters to expected gross future revenues.
Based on management's estimates of gross future revenues as at April
30, 2000, it is expected that the record masters will be absorbed
principally over the next ten years.
Record masters are written down to the net recoverable amount if the
investment is greater than the net recoverable amount. Net
recoverable amount is defined as the total future revenues expected
to be earned from the record masters net of future costs.
Preproduction costs represent expenditures made on projects prior to
production. Advances or contributions received from third parties
to assist in development are deducted from these expenditures. Upon
commencement of production, preproduction costs are charged to
production. Preproduction costs which have not been set for
production and are held for more than five years are ultimately
expensed. Preproduction costs are written off when determined not
to be recoverable.
In managements opinion, record masters and preproduction costs have
been classified as a current assets because management can either
sell the distribution rights for a limited period of time or
management can sell over a short period of time the individual
masters.
<PAGE> F-9
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
1. ACCOUNTING POLICIES (Cont'd)
f) Government Loans and Incentives Payable
The Company has access to several government programs that are
designed to assist record production and distribution in Canada and
around the world. The Company has two such programs in operation and
are repayable as follows:
$
--------
Government Loan Payable
- repayable starting December 31, 1998 up to
December 31, 2007 at 3% of its worldwide
sales non-interest bearing. 33,068
Government Loan Payable
- repayable as follows:
December 31, 2000 - 20% of the loan
December 31, 2001 - 25% of the loan
December 31, 2002 - 25% of the loan
December 31, 2003 - 30% of the loan
- non-interest bearing 48,510
-------
81,578
Less: Current portion (13,702)
-------
Long-term portion 67,876
=======
Capital repayments over the next five years.
$
------
April 2001 13,702
April 2002 16,127
April 2003 17,128
April 2004 20,553
April 2005 7,500
g) Capital Assets
Capital assets are carried at cost less accumulated amortization.
Amortization is provided primarily using the following method and
annual rates:
Intangibles - Diminishing balance - 7%
Computer hardware and software - Diminishing balance - 30%
Furniture and fixtures - Diminishing balance - 20%
Production equipment - Diminishing balance - 20%
Leasehold improvements - Straight-line - 5 years
Rolling stock - Diminishing balance - 30%
<PAGE> F-10
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
1. ACCOUNTING POLICIES (Cont'd)
h) Website Development Costs
Website development costs are capitalized as incurred and will be
amortized over its expected useful live which management estimates
to be three years. To date all costs have been capitalized as the
website is still under development and is not available for
commercial use yet.
i) Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128.
"Earnings per Share" (SFAS 128). SFAS 128 changes the standards for
computing and presenting earnings per share (EPS) and supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share."
SFAS 128 replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the
numerator and denominator the diluted EPS computation. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. This Statement
requires restatement of all prior-period EPS data presented.
As it is related to the Company, the principal differences between
the provisions of SFAS 128 and previous authoritative pronouncements
are the exclusion of common stock equivalents in the determination
of Basic Earnings per share and the market price at which common
stock equivalents are calculated in the determination of Diluted
Earnings per share.
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computed using the weighted
average number of shares of common stock and dilutive common
equivalent shares related to stock options and warrants outstanding
during the period.
For the period ended April 30, 2000, primary earnings per share was
the same as basic earnings per share and fully diluted earnings per
share was the same as diluted earnings per share.
j) Foreign Exchange
Assets and liabilities of the Company which are denominated in
foreign currencies are translated at exchange rates prevailing at the
balance sheet date. Revenues and expenses are translated at average
rates throughout the year.
<PAGE> F-11
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
1. ACCOUNTING POLICIES (Cont'd)
k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
l) Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
2. RECORD MASTERS AND PREPRODUCTION COSTS
$
-------
Record masters, net of amortization 462,942
Record masters and preproduction costs in
progress 153,879
-------
616,821
=======
3. CAPITAL ASSETS
Cost Amortization Net
---- ------------ ---
$ $ $
Rolling stock 2,056 576 1,480
Furniture and fixtures 16,381 8,079 8,302
Computer hardware and software 49,772 34,987 14,785
Production equipment 173,717 47,738 125,979
Intangibles 13,113 2,922 10,191
Leasehold improvements 3,558 2,722 836
------- ------- -------
258,597 97,024 161,573
======= ======= =======
4. BANK DEMAND LOAN
The bank demand loan is secured by the personal guarantee of a director
and shareholder and a pledge on the accounts receivable and a lien on the
equipment.
<PAGE> F-12
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
5. FUTURE INCOME TAXES PAYABLE
Future income taxes payable arise as a result of timing differences
occurring when amortization of record masters and preproduction costs
differ from amortization rates prescribed for income tax purposes.
For the period from February 21, 2000 to April 30, 2000, the amount of
future income taxes payable recorded in the accounts were $6,119.
6. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional (Deficit)
Common Stock paid-in Retained
Shares Amount Capital Earnings
------ ------ ---------- ----------
$ $ $
<S> <C> <C> <C> <C>
June 3, 1997
issued for services 5,000,000 5,000 (3,000) -
Net loss, June 3, 1997,
to December 31, 1997 - - - 2,000)
---------- ------ ---------- ----------
Balance,
December 31, 1997 5,000,000 5,000 (3,000) (2,000)
Net loss year ended
December 31, 1998 - - - -
---------- ------ ---------- ----------
Balance,
December 31, 1998 5,000,000 5,000 (3,000) (2,000)
Net loss
January 1, 1999 to
December 31, 1999 - - - -
---------- ------ ---------- ----------
Balance,
December 31, 1999 5,000,000 5,000 (3,000) (2,000)
February 21, 2000
- cancellation of
shares (3,317,000) (3,317) 3,317 -
- issued shares in
exchange of 100% of
Grand Entertainment
& Music G.E.M. Inc.
(Canada) 16,000,000 16,000 714,983 -
---------- ------ ---------- ----------
Balance,
February 21, 2000 17,683,000 17,683 715,300 (2,000)
Net earnings
February 22, 2000
to April 30, 2000 - - - 11,877
---------- ------ ---------- ----------
Balance,
April 30, 2000 17,683,000 17,683 715,300 9,877
========== ====== ========== ==========
</TABLE>
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
7. COMMITMENTS
The Company leases premises under leases expiring in May 2001 and July
2001. Minimum lease payments over the balance of the leases are as
follows:
$
------
April 2001 21,975
April 2002 3,970
8. FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT
In conducting its business, the Company used various instruments to manage
the risks arising from fluctuations in exchange rates. All instruments
are used for risk management purposes only.
a) Concentration of Credit Risk
The Company's exposure to concentration of credit risk is limited due
to the large number of customers comprising the Company's customer
base and their dispersion across many geographic locations.
b) Fair Value of Financial Instruments
The fair value of current monetary assets and liabilities
approximates their carrying values as reported in the consolidated
balance sheet due to the relatively short period to maturity of the
instruments.
Due to its floating rate nature, the carrying amount of the bank term
loan approximates its fair value.
9. SUBSEQUENT EVENTS
On July 11, 2000, the Company signed a contract with the Company MP3.com,
which contract was announced by MP3.com on July 19, 2000 by means of a
press release. Under this contract, the Company acquires certain rights
and assumes certain obligations respecting the future marketing of its
products. Given the forward looking nature of the agreement, it is not
possible to assess with any reasonable degree of certainty, the quantitive
benefits to the Company which this contract might provide.
The contract is for an initial period of two years and is renewable for
successive one year periods.
<PAGE> F-13
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at April 30, 2000
10. DILUTIVE FACTORS
The Company has neither debt obligations nor senior equity securities in
circulation having conversion privileges into common stock. There are no
options, warrants, or similar instruments outstanding which could cause an
increase in common stock outstanding. Furthermore, the Company has not
adopted a stock option plan for its directors or employees which would
cause an increase in common stock outstanding.
<PAGE> F-14
