U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
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.
(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 (514) 328-9348
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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
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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)
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ITEM 1. DESCRIPTION OF BUSINESS
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Introduction
The Company was incorporated as Future Projects II Corp., a "blank check"
company, 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
Overview
The Company is an independent record production company, which was recently
established through the exchange of shares with the three subsidiaries set
forth below. The Company's revenues to date were derived through these three
subsidiaries from the manufacture and distribution of compact discs ("CDs"),
audiocassettes and vinyl records, studio rentals and licensing fees. These
subsidiaries are:
160662 Canada, Inc. (HITT Records) formed in 1987 produces recordings of
various artists signed to its own labels as well as for other independent
record companies. HITT Records also writes and produces radio and television
commercials, and remixes of previously released recorded music.
2867-0453 Quebec, Inc. (Mint Music International) - a music company founded by
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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
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. Following are gold and platinum records produced by Cherry
Production Studios between 1993 and 1999: (VJ can you set up this chart in
a more organized manner?):
"For Your Love" by Laurell, Polytel-Polygram Canada sold over 50,000 units
"Be good To Me" by Christine Polytel-Polygram Canada sold over 50,000 units
"Give Me Love" by Lady Dee Polytel-Polygram Canada sold over 100,000 units
"Get Away" Shauna Davis, Sony Dance pool Germany sold over 600,000 units
"Into You" by Shauna Davis, Polytel-Polygram Canada sold over 50,000 units
"Try My Love" by Shauna Davis, Sony Music Direct Canada sold over 100,000 units
"Do It To It" by Michelle Narine
"BaddaBing BaddaBoom" by Big Bass, Sony Music Direct Canada sold over 50,000
units
"I'm slave to the Rhythm" by Costanza, Polytel-Polygram Canada sold over 50,000
units
Award Winning Commercials, Studio Productions
Chrysler COLT & SPIRIT Radio & TV commercials
Club BIZ and Club ULTIMA Radio & TV commercials
TELEMACH - Recording productions.
Christmas dance countdown & Des comptes et dances de noel (Album Recording,
Radio & TV commercials) On Polytel
NuMUZIK/Polygram Series ( Polygram now is a division of Universal group)
Dj Club Mix Vol. 2 Gold (over 50,000 units)
Dj Club Mix Vol. 3 Gold (over 50,000 units)
Dj Club Mix Vol. 4 Gold (over 50,000 units)
Dj Club Mix Vol. 7 Gold (over 50,000 units )
Dj Club Mix Vol. 8 Gold (over 50,000 units)
Dj Club Mix Vol. 5 Platinum (over 100,000 units)
Dj Club Mix Vol. 6 Platinum (over 100,000 units)
Polygram series 100 % Dance Platinum (over 100,000 units)
Polygram series 200 % Dance Platinum (over 100,000 units)
Polygram series MasterMix Platinum (over 100,000 units)
2 Ampex Golden reels. For sales of over 50,000 units.
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MC Mario Mc Mario Vol. 1 & 2 & 3 All over 50,000 units
"At Midnight" by D.J Andre & D.J Renzo featuring Equa, Polytel-Polygram Canada
sold over 100,000 units
Gem's combined activities through its subsidiaries encompass all phases of
production of music recordings. The Company distributes its products to retail
through third party distributors, such as Universal One Stop Distribution of
Philadelphia and Popular Records/ V.O.T.U. (Italy) and through HMV-Virgin and
Tower.
The Company's objective is to establish itself as a major provider of
downloadable music content over the Internet. The Company's business strategy
is to utilize its recording, production and distribution facilities and
expertise in the market for downloadable recordings and to exploit the changing
dynamics of the recording industry. The Company intends to continue to acquire
its content from, among others, independent record labels, owners of recording
catalogs and new and established recording artists. In addition, the Company
plans to establish retail relationships with other online distributors under
which the Company and such distributors would receive commissions for sales
generated from the others' websites.
Our management team has significant experience in both the music recording and
publishing industries. Additionally, we recently entered into a marketing
alliance with MP3.Com ., a leading online music website. This alliance
currently allows us to access MP3.Com .'s subscription base for marketing of
our content. Currently, our content can be accessed on MP3.Com's website under
the children's subscription channel.
Business Strategy
We seek to be the leading provider of custom CDs and digitally downloaded music
and in house produced songs on the Internet. The Company intends to use
GEMUSIC.com, as well as record stores and other traditional channels, to
promote and original and licensed artists recordings. The Company believes that
it can leverage its internet platform by promoting and selling its own
proprietary titles acquired and produced in house by artists and business
management staff.The core elements of our strategy include:
. offering a new way to buy high quality music;
. offering an extensive selection of music for custom compilation and
digital downloading;
. increasing website traffic through industry alliances and multiple
hyperlinks; and
. offering thematic and genre-specific choices.
Development of Internet Portal Web Site
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
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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.
According to a Jupiter Communications Executive Survey, published in Jupiter's
Vision Report, Volume 4, dated February 9, 2000, 35 percent of commerce sites
reported implementation times of between six months and a year; and 15 percent
said that implementation efforts lasted more than a year. Furthermore according
to this same report, more than 60 % of managements' time of the surveyed
companies was spent on the redesign aspects of their websites and portals. The
report's authors relate that directly to poor planning. The authors recommend
that a technological alliance for the design and maintenance as well a phase
development plan is essential. GEM is currently working with Cadnetics, a
Montreal based software development company specializing in E-Commerce and
database design. Some of Cadenetic Inc.'s clients include, SPAR Aerospace, the
United States Patent Office, the Canadian Space Agency, Norwest financial
Services, Bravo Digital Technology Corporation, and Nortel.
The Company's Internet Web Site will be powered by a system called XPS
(Extended Portal System). This technology is proprietary to Cadnetics, Inc.
GEM is currently in negotiations with Cadnetics to become exclusive licensee
of this technology in the online music business. XPS will offer distinct
advantages to the Company's online clients, the independent producers ("IP'S").
We believe that offer our IP'S has the advantages of being part of a most
comprehensive music web site, along with a simplified hands on proprietary
approach to managing their web pages and sales.
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.
Competition
The market for Internet content providers is, highly competitive, and rapidly
changing. The Company believes that the primary competitive factors in
providing music entertainment products and services via the Internet are name
recognition, content available on an exclusive basis, variety of value-added
services, ease of use, price, quality of service, availability of customer
support, reliability, technical expertise, and experience. The Company's
success in this market will depend heavily upon its ability to provide high
quality, entertaining content, along with cutting-edge technology and value-
added Internet services. We believe competition will continue to grow and
intensify. Our most visible custom compilation competitors currently include
Custom Revolutions, Inc., CDuctive, and Amplified.com. Although our primary
focus is on sales of custom, rather than pre-recorded music CDs, we may
ultimately compete with existing online Websites that provide sales of
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pre-recorded music on the Internet such as N2K, CDnow, Inc., Amazon.com, Inc.,
Barnesandnoble.com, Inc., Columbia House and BMG Music Service.
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
According to the Recording Industry Association of America ("RIAA"), recorded
music sales during the past four years have been approximately $12 billion per
year in the United States and $38.1 billion per year worldwide. Nearly all of
this revenue was derived from the sale by physical manufacture and delivery of
compact discs ("CDs"), audiocassettes, and other physical formats.
The recording industry is divided in two major groups: the first group, the
majors (the "Majors"), such as Warner Brothers, BMG, Universal 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 Majors. the Majors which
dominate the U.S. music industry include: Warner-Elektra-Atlantic (WEA);
Universal Group Distribution; MCA Music Entertainment; BMG Distribution, Sony
Music Entertainment, and CEMA/UNI Distribution.
The Independents tend to be 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. According to Jupiter
Communications, during the period 1992-1997, the market share of independent
record labels increased from 11.6% to 23.2%. For 1997, the independent record
labels were responsible for two-thirds of all new releases of recorded music.
The new distribution opportunities resulting from the development of the
Internet and new technology facilitating the downloading of music present
significant new opportunities for independent record labels. The Company
believes independent labels are likely to be more receptive to such
opportunities as they are generally less entrenched with traditional
distribution channels
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Industry Growth
Management believes that the percentage of music purchases made by direct
download over the Internet will be a significantly increasing percentage of
total music purchases during the next several years. This increase is being
driven by the increasing proliferation of personal computers ("PCs") in the
home, the increase in affordable storage capacity, the increase in high speed
access to the Internet, and the deployment of recordable CDs ("CD-Rs") and
portable music players, such as Diamond Multimedia Systems ("Diamond")'s Rio
PMP 300 ("Rio"). Gem Entertainment's long-term objective is to establish itself
as a major provider of music content direct to consumers over the Internet. The
Company believes that the Internet is an ideal medium for promoting, marketing,
and selling music and music related products and services. Potential online
consumers of music recordings can preview their choices by listening to record
samples, viewing text and graphics, artists' biographic data, and searching a
catalog of available titles. Internet users can also search for music by genre
or artist, access information and events, including music history and news,
artists' biographies, cybercast concerts and radio broadcasts, and participate
in live interviews with artists. In addition, because the Internet is a highly
interactive medium and user responses can be tracked, the Company believes that
advertisers will become increasingly attracted to opportunities to focus their
marketing efforts on specific target markets. According to Jupiter
Communications, total online music revenues, which include prerecorded music
sales, music-related merchandising, advertising, and concert ticketing, are
expected to grow from an estimated $88.0 million in 1998 to $1.4 billion in
2002. Jupiter Communications further estimates that the number of online
households making purchases is expected to grow from an estimated 15.2 million
in 1996 to over 54.0 million in 2002, representing over 50% of U.S. households.
Management believes that the Independents are increasingly becoming one of the
major sources for new music. 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.
Effect of the Internet
According to Jupiter Communications, total online music revenues, which include
prerecorded music sales, music-related merchandising, advertising, and concert
ticketing, are expected to grow from an estimated $88.0 million in 1998 to $1.4
billion in 2002. Jupiter further estimates that the number of online households
making purchases is expected to grow from an estimated 15.2 million in 1996 to
over 54.0 million in 2002, representing over 50% of U.S. households. In addition
to the development of the Internet, other technological developments are
facilitating the market for downloadable music.
New digital technologies are increasing consumer options in selection of their
buying choices. The company believes as the Internet music becomes more
accessible and user friendly, consumers of music will increasingly choose the
recorded music through a customized selection rather than a pre-arranged and
mass packaged bundle.
We believe consumers' acceptance of our custom CDs and digitally downloaded
music will depend on:
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. our ability to consistently provide high quality custom CDs and digitally
downloaded music at competitive prices;
. our maintenance of a user-friendly ordering process and a high level of
customer service; and
. Consumers' desire to conduct online commerce, specifically their demand
for custom CDs;
Factors influencing record labels' acceptance of our business model include
the belief that sales of custom CDs and digitally downloaded music will enable
record labels to gain market exposure for artists and titles in their back
catalogs and generate incremental revenue without disrupting existing
distribution channels or retail pricing structures.
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 provides a complete
service package to music artists, producers and copyright owners in Canada and
internationally for its signed artists, and on a contract basis to other
independent labels and advertising agencies, and distributing their music
through independent distributors. Within its traditional activities, the
revenue breakdown of the Company for fiscal year 2000 was 19.9% ($44,120.00)
for licensing, 65% ($143,390.00) for record sales and 15% ($33,092.00) for
studio rentals.
Because a significant amount of the Company's time and resources are being
devoted to expansion of its internet related activities, technological
assessment and planning and beta testing for the website, management believes
that this year's earnings will be lower.
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.
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.
Assuming that adequate funding will be available, the Company intends to
promote its website through strategic alliances, external advertising, website
direct promotion, and trade shows. The Company expects that the costs related
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to such activities will consist principally of advertising, personnel, and
consulting expenses.
The Company expects to experience significant fluctuations in operating results
in the future due to a variety of factors, including, but not limited to: (i)
market acceptance of the Internet as a medium for consumers to obtain sound
recordings; (ii) the Company's ability to create, license, and deliver
compelling music and music-related content; (iii) the level of traffic on the
Company's website; (iv) intense competition from other providers of music-
related content over the Internet; (v) delays or errors in the Company's
ability to effect electronic commerce transactions; (vi) the Company's ability
to upgrade and develop its systems and infrastructure in a timely and effective
manner; (vii) technical difficulties, system downtime or Internet brownouts;
(viii) th Company's ability to attract customers at a steady rate and maintain
customer satisfaction; (ix) seasonality of the recorded music industry; (x)
seasonality of advertising sales; (xi) Company promotions and sales programs;
(xii) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations, and infrastructure
and the implementation of marketing programs, key agreements and strategic
alliances; (xiii) the number of recorded music releases introduced during the
period; (xiv) the level of returns experienced by the Company; and (xv) general
economic conditions and economic conditions specific to the Internet, online
commerce, and the recorded music industry.
The Company is at the development/ production stage with its internet portal.
The portal and its architecture are being designed by Cadnetics Inc., Montreal,
Quebec, a software design and management company. Management is prepared to
invest much of the Company's resources, principally during 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. Management intends to
aggressively invest in the implementation of its Internet marketing strategy.
The Company is pursuing additional financing to complete the website
development and is in negotiations with Cadnetics, Inc. to enter into a joint
venture agreement whereby Cadnetics, Inc. would be offered a stock options in
exchange for a significant portion of the development costs.
New Developments in the Music Industry
Management believes that while it is difficult to determine the outcome of
current legal issues related to free distribution of music online (i.e.
Napster), sale of music over the internet is inevitable; and that superior and
upgradable technology, content acquisition and marketing alliances are the keys
to capturing a significant market share in the online music business.
Management also believes that a number of on-line companies that have invested
in website platforms and web based architecture are experiencing technical
roadblocks due to newer and more complex distribution channels emerging in the
industry; and that a continued focus on traditional business segments and phase
development plan for the web portal will allow the Company to grow with the
technological advancements as they become available.
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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 it will be able to take advantage of what it believes
to be the transformation of the recording industry by the Internet and the
digital transmission of music multiplying the on-line opportunities for
independent labels and artists.
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
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
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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.
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.
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
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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.
"Penny Stock." 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. This rule could seriously affect the
liquidity of the stock of the Company.
Listing on NASDAQ. 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. This could seriously
affect the liquidity of the stock of the Company.
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
<PAGE> 13
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.
ITEM 3. DESCRIPTION OF PROPERTY
-------------------------------
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
----------------------------------------------------------------------
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 (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(2) 23.6 %
4 De Gaspe,
D.D.O. (QC) Canada
H9B3G8
Common Peter Stocola 4,176,400 common(3) 23.6 %
6147 Point Briand
St Leonard (QC) Canada
H1P1R6
</TABLE>
<PAGE> 14
<TABLE> Contd..
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
-------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Michael Ash 3,470,800 common(4) 19.6 %
Rue de la Promanade
St. Bruno (QC), Canada
Common Officers and Directors 12,529,200 common 70.8 %
as a group (1)
(1) Through ownership of 3703088 Canada, Inc.
(2) Through ownership of 2867-0453 Quebec, Inc.
(3) Through ownership of 3535924 Canada, Inc.
(4) Through ownership of Ashbyrne 2000, Inc.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
--------------------------------------------------------------------
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 34 Treasurer, Chief Financial Officer and
Director
Larry Yasgar 58 Director
Magda Bererra 38 Director
Fred Berlin, a co-founder of the Company, was appointed President, Chief
Executive Officer, and a Director and has held these positions with Original
GEM since November 1998. Mr. Berlin has been connected with the entertainment
business since the mid 1970's, beginning his carrier in 1974 continuing to
1977 as a performer, from 1975 to 1980 worked for Benson & Hedges and Cara
Enterprises in retail management and personally led motivational seminars for
internal management staff. Beginning in 1977 continuing to 1984 he worked as a
disc jockey, head sound and lighting technician in nightclubs and on road
tours with various recording acts such as "Harold Melvin & the Blue Notes",
"Bonnie Pointer", "Tavares" and "The Tramps" in late 1983 he began working as
an independent producer remixer working with "Frank Ciccorelli" & "Richie
<PAGE> 15
Reveria" remixing for TK Records. From 1984 to 1987 he was a partner and the
President of Panache Records, located in Montreal Quebec Canada his duties
included the day to day operation of the corporation as well talent scouting
for new Artists and over saw the sales of the corporation. Panache Records
under his guidance signed such Artists as Italy' "Garry Low", "David Christie"
and the writing team of Peter and Paul Mucconi for Canada. In 1987 he founded
HITT Records; early in 1988 he released the first artist on HITT, "POBI", and
her song climbed to #1 in Quebec and #5 across Canada. He also released many
new and talented artists, 15 of whom entered the Canadian music charts at
various levels. In mid 1988, Mr. Berlin accepted the position as co-C.E.O. of
Premier Music Distribution and within the year he, with the help of music
veteran, Lawrence Stienberg, signed 15 exclusive distribution contracts with
such labels as "Hannibal Carthage", "Road Runner & Road Racer Records" and
"Charlie Records". In 1989, Mr. Berlin rejoined HITT Records and remained its
owner until Old GEM acquired the Company in November, 1998. He currently
manages the operation and content acquisition for the Company as well as
continuing his role in new talent development, production and sales.
Emilio Fulcro, a co-founder of the Company, was appointed Chief Operating
Officer, Director of Marketing and Sales, and Corporate Director of Old GEM
since November 1998. His career began in 1975 in sales. From 1975 to 1980 he
worked for Cenco Importers, where his duties included sales of novelty items
throughout the Maritime Provinces and Quebec. From 1978 to 1986, he owned and
operated three audio and video outlets called "La Ville du Disque" in Quebec
(Lasalle, Delson and Greenfield Park). From 1984 to 1986, he owned and
operated a recording studio to produce his own products, during which he
produced one of the first children's lines which included a 12 album set (54
fairytales) recorded with character voices and sound effects and a ten-album
set of children's songs and rhymes in English and French. From 1986 to 1993
he worked for Madacy Distribution Inc., Montreal, Quebec, as Regional Sales.
From1993 until 1998, he owned Mint Music International, Inc., a recording
studio and graphic design company, where he designed cassette and compact
disc jackets, as well as other marketing tools for various clients;
conceptualized new seasonal products for Christmas and Halloween, and
classical combinations and relaxation themes. The most popular projects to
date have been the creation of a children's line of music and stories such as
"Les Chansons Enfantines" (1994), "The Alphabet Series" (1997), "La
Collection Alphabet" (1997), "Fun Time" (1998), "Let's Discover Series"
(1998), "Chantons Dansons" (1999) and "Chansons Magiques" (1999).
Peter Stocola, a co-founder of the Company, was appointed Vice President -
Engineering and a Director since November, 1998. He entered the entertainment
business as a performer in 1978, studying under the direction of Professor
Anthony Diciaro of Magill University, Montreal, Quebec. From 1978 to 1983 he
performed with many different groups as the opening act for various
international acts visiting Montreal. From 1980 to 1984, he built his first
recording studio and ran all aspects of the business. From 1984 to 1986, he
ran Cherry Production Studios, located in Montreal after graduating the
Trebas Institute, where he studied recording engineering. From 1986 to1989
he moved Cherry Production Studios to a larger location, expanding its
operations. His responsibilities were in house production, engineering and
the daily operations of the company. In 1989, Cherry Production Studios moved
once again and expanded to include five recording, pre production, mastering
and full state of the art production studios. During these years, Mr. Stocola
produced and/ or engineered a multitude of projects, which gained him a
reputation worldwide. The following is a list of his Canadian Gold and
Platinum achievements:
<PAGE> 16
(1) "For Your Love" by Laurell, Polytel-Polygram Canada sold over 50,000
units
(2) "Be good To Me" by Christine Polytel-Polygram Canada sold over 50,000
units
(3) "Give Me Love" by Lady Dee Polytel-Polygram Canada sold over 100,000
units
(4) "Get Away" Shauna Davis, Sony Dance pool Germany sold over 600,000 units
(5) "Into You" by Shauna Davis, Polytel-Polygram Canada sold over 50,000
units
(6) "Try My Love" by Shauna Davis, Sony Music Direct Canada sold over 100,000
units
(7) "Do It To It" by Michelle Narine
(8) "BaddaBing BaddaBoom" by Big Bass, Sony Music Direct Canada sold over
50,000 units
(9) "I'm slave to the Rhythm" by Costanza, Polytel-Polygram Canada sold over
50,000 units
(10) "I Want You Back" by Costanza Polytel-Polygram Canada sold over 50,000
units
Award Winning Commercials and Studio Productions
(1) Chrysler COLT & SPIRIT Radio & TV commercials
(2) Club BIZ and Club ULTIMA Radio & TV commercials
(3) TELEMACH - Recording productions for Radio and TV in three languages
(English, French and Spanish)
Christmas dance countdown & Des comptes et dances de noel , Seductive Sax
and Fresh Dance (Album Recording, Radio & TV commercials) On Polytel/Polygram
NUMIZIK / Polygram Series Gold and Platinum
(a) Dj Club Mix Vol. 2 Gold (over 50,000 units)
(b) Dj Club Mix Vol. 3 Gold (over 50,000 units)
(c) Dj Club Mix Vol. 4 Gold (over 50,000 units)
(d) Dj Club Mix Vol. 7 Gold (over 50,000 units )
(e) Dj Club Mix Vol. 5 Platinum (over 100,000 units)
(f) Dj Club Mix Vol. 6 Platinum (over 100,000 units)
1 Polygram series 100 % Dance Platinum (over 100,000 units)
2 Polygram series 200 % Dance Platinum (over 100,000 units)
3 Polygram series MasterMix Platinum (over 100,000 units)
. Ampex Golden reels. For sales of over 50,000 units.
MC Mario Mc Mario Vol. 1 & 2 & 3 All over 50,000 units
"At Midnight" by D.J Andre & D.J Renzo featuring Equa, Polytel-Polygram
Canada sold over 100,000 units. The above are all QRIA certified in
Canada, as well many of the above have also achieved international status
in many territories.
Larry Yasgar was appointed to the board of directors of the Company in
November, 1998. He began his career with Atlantic Records in 1970 as regional
Sales and was promoted to National Sales manager in 1973. In 1975, with the
introduction of the 12" maxi single, his duties included the responsibility
for all promotion, sales and production of this new format. In 1985, he was
promoted to Vice President and was given A&R authority in connection with all
12" dance products. His first signing, Nu Shooz, went on to sell in excess of
2 million units world wide of their debut album. Other signings included
Stacy Q, Regina, Nancy Martinez, Company B and Debbie Gibson. In 1987, he was
responsible for bringing Johnny Z's Megaforce Records to Atlantic with groups
such as Testament, Overkill and King's X.. He was also responsible for the
First Priority Records/Atlantic Records joint venture which focused on the
rap market. Over a seventeen year period with Atlantic Records, he signed and
promoted a dozen artists with combined sales in excess of 10 million CD's,
cassettes and albums world-wide with an approximate gross revenue to Atlantic
<PAGE> 17
Records of $70 Million dollars. From 1988 to 1990, he founded and was
President of "Vendetta Records" an A&M Records funded and distributed label.
During this period he signed Denise Lopez, Maurice Joshua and Seduction, the
last of which marked the beginning of writing/production team of Robert
Clivilles and David Cole. With a staff of five, a capital expenditure of $2.5
million over two and one half years of operation, the label generated sales
of approximately $2 million in the CD and cassette formats. These sales
generated approximately $16 million in gross revenues for A&M. From 1990
until 1995, he was Vice President of the A&R Division of Columbia Records, at
which time he was responsible for developing C&C Music Factory.
Magda Berrera was appointed to the board of directors of the Company in
1998. Presently she is the Vice President of the Muzik Firm, New York,
N.Y. where her many responsibilities cover the representation of various
publishing companies and acting as a publishing administrator and liaison
person for various companies for sub-publishing transactions in foreign
countries; registering the company's catalogs in the Library of Congress
and with ASCAP, BMI and SESAC; signing new composers, the placement of
songs, and issueing and tracking all licenses. She also generate
registration for copyrights utilizing ASCAP/BMI software. Ms. Berrera
began her carrier in 1980 as a royalty manager for Boosey & Hawks, New
York, N.Y. From 1991-1992, she was with Sony Discos / RMM Records, Miami,
Florida as a music publishing administrator responsible for signing new
composer/placement of songs, issue and tracking licenses. From 1992 to
1993, she worked at WEA LATINA, Miami, Florida as its music publishing/A&R
administrator where her responcibilities included the signing of new
composers, placement of songs and the issuing and tracking of all
licenses. From 1993 to1996, she worked for Vedisco Music Publishing,
Miami, Florida as Director of Music Publishing where she was responsible
for signing new composer/placement of songs, issueing and tracking all
licences. In 1996, she was the Director of Latin Membership at ASCAP,
New York, N.Y. Ms. Berrera graduated with honors from Jersey City State
College with a BA. in Business Administration and Art.
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>
<TABLE>
<CAPTION>
Awards Other
Other Restricted Stock
Name and 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, 2000 -0- -0- -0- -0- -0-
Secretary
Peter Stocola, 2000 -0- -0- -0- -0- -0-
Treasurer
</TABLE>
<PAGE> 18
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 November 19, 1998, 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 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 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.
<PAGE> 19
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.
<TABLE>
<CAPTION>
Price Range
2000 High Low
------------- ---- ----
<S> <C> <C>
First Quarter $6.00 (3/29/00) $1.500 (2/24/00)
Second Quarter $9.031 (4/4/00) $1.125 (6/27/00)
Third Quarter $8.00 (9/8/00) $1.125 (9/8/00)
Fourth Quarter $8.00 (11/27/00) $0.40 (12/18/00)
</TABLE>
On December 29, 2000, the closing price for the Common Stock was $0.50.
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
------------------------------------------------------
The independent accountants for the Company are Fine & Associates, 5101 Rue
Buchan, 5th Floor, Montreal, Quebec, H4P 1S4. There have been no changes in
nor disagreements with the accountants. The financial statements prepared by
them are presented in accordance with U.S. Generally Accepted Accounting
Principles.
<PAGE> 20
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
------------------------------------------------
Please refer to Note 6 of the Financial Statements attached for a description
of recent sales of unregistered securities. The shares were issued pursuant
to Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the shares. The securities
were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted.
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 (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.
Interim Consolidated Financial Statements dated October 30,
2000 including Interim Consolidated Balance Sheet, Interim
Consolidated Statement of Retained Earnings, Interim
<PAGE> 21
Consolidated Statements of Earnings, Interim Consolidated
Statement of Cash Flows and Notes to Interim Consolidated
Financial Statements.
(b) Exhibits
3(i)(a) Articles of Incorporation of the Company **
3(ii)(a) Bylaws of the Company.**
10 Agreement for the Exchange of Common Stock dated
February 21, 2000**
21 List of Subsidiaries**
27 Financial Data Schedule*
* Filed herewith.
** Incorporated by reference to Exhibits of Registrant's Form
10-SB filed on July 24, 2000.
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.
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/ Fred Berlin
------------------------------------------------------------
Fred Berlin, President, Chief Executive Officer and Director
Date:01/03/00
--------
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/ Emilio Fulcro
---------------------------------------------------------
Emilio Fulcro, Secretary, Chief Operating Officer, and
Director
Date:01/03/00
--------
Grand Entertainment & Music (G.E.M.), Inc.
By:/s/ Peter Stocola
---------------------------------------------------------
Peter Stocola, Treasurer, Chief Financial Officer and
Director
Date:01/03/00
--------
Print the name and title of each signing officer under his or her signature.
<PAGE> F-1
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
(FORMERLY FUTURE PROJECTS II CORP.)
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
<PAGE> F-2
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-3
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-4
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-5
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-6
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-7
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-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
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-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)
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-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)
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-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)
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-12
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-13
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-14
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-15
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000
<PAGE> F-16
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
Table of Contents
Exhibit
Review Engagement Report
Interim Consolidated Balance Sheet......................... A
Interim Consolidated Statement of Retained Earnings........ B
Interim Consolidated Statement of Earnings................. C
Interim Consolidated Statement of Cash Flows............... D
Notes to Interim Consolidated Financial Statements
<PAGE> F-17
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Grand Entertainment & Music G.E.M. Inc.
We have reviewed the consolidated balance
sheet of Grand Entertainment & Music
G.E.M. Inc. as at October 31, 2000 and
the consolidated statements of retained
earnings, earnings and cash flows for the
period then ended. Our review was made
in accordance with generally accepted
standards in the United Stated of America
for review engagements and accordingly
consisted primarily of enquiry,
analytical procedures and discussion
related to information supplied to us by
the Company.
A review does not constitute an audit and
consequently we do not express an audit
opinion on these consolidated financial
statements.
Based on our review, nothing has come to
our attention that causes us to believe
that these consolidated financial
statements are not, in all material
respects, in accordance with generally
accepted accounting principles in the
United States of America.
Chartered Accountants
Montreal, Quebec
December 15, 2000
- 1 -
<PAGE> F-18
Exhibit A
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED BALANCE SHEET
As at October 31, 2000
(UNAUDITED)
ASSETS
US Dollars
----------
$
CURRENT
Accounts receivable 141,263
Record masters and preproduction costs
(notes 1 and 2) 714,216
---------
855,479
CAPITAL ASSETS (notes 1 and 3) 150,801
(net of accumulated amortization of $107,796)
WEBSITE DEVELOPMENT COSTS ((note 1) 21,890
---------
1,028,170
=========
LIABILITIES
CURRENT
Bank demand loan (note 4) 47,323
Accounts payable and accrued liabilities 76,176
Current portion of government loan payable 13,702
--------
137,201
GOVERNMENT LOAN PAYABLE (note 1) 67,876
LOAN PAYABLE - OTHERS (note 5) 18,667
FUTURE INCOME TAXES PAYABLE (note 6) 50,481
--------
274,225
SHAREHOLDER'S EQUITY
Common stock, $.001 par value
authorized 50,000,000 shares issued
and outstanding at October 31, 2000
17,683,000 shares 17,683
ADDITIONAL PAID IN CAPITAL 623,249
RETAINED EARNINGS 113,013
753,945
---------
1,028,170
---------
See accompanying notes
Approved on behalf of the board:
_______________________________ Director
<PAGE> F-19
Exhibit B
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
-----------
$
Retained earnings - beginning of period 101,928
Net earnings 11,085
-------
RETAINED EARNINGS - END OF PERIOD 113,013
-------
See accompanying notes
<PAGE> F-20
Exhibit C
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF EARNINGS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
----------
$
REVENUE 45,274
COST OF SALES 9,055
----------
GROSS PROFIT 36,219
----------
EXPENSES
Travel, promotion and advertising 3,494
Office, telephone and rent 8,451
Professional fees 1,149
Interest and bank charges 944
Amortization of capital assets 5,386
----------
19,424
----------
Earnings before provision for income taxes 16,795
PROVISION FOR INCOME TAXES
Future income taxes 5,710
----------
NET EARNINGS FOR THE PERIOD 11,085
==========
NET EARNINGS PER SHARE .00
----------
WEIGHTED AVERAGE SHARES OUTSTANDING 17,683,000
==========
See accompanying notes
<PAGE> F-21
Exhibit D
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
----------
$
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period 11,085
Add (deduct) non-cash items:
Amortization 10,772
Future income taxes 5,710
Net changes in non-cash working capital:
Accounts receivable 46,285
Record masters and preproduction costs (97,396)
Accounts payable and accrued liabilities (22,226)
----------
Net cash used in operating activities (45,770)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable - others 18,667
Decrease in bank demand loan (92,519)
Increase in bank demand loan 119,622
----------
Net cash provided by financing activities 45,770
----------
INCREASE IN CASH -
Cash - beginning of period -
CASH - END OF PERIOD -
==========
See accompanying notes
<PAGE> F-22
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES
a) History and Organization of the Company
The Company was organized November 19, 1998, under the Canada
Business Corporations Act.
b) Principle of the Consolidated Financial Statements
The consolidated financial statements include the accounts of:
Grand Entertainment & Music G.E.M. Inc.
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
October 31, 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-23
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
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 October 31, 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-24
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
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-25
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
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 October 31, 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-26
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
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 554,945
Record masters and preproduction costs in
progress 159,271
-------
714,216
=======
3. CAPITAL ASSETS
Cost Amortization Net
------- ------------ ----
$ $ $
Rolling stock 2,056 667 1,389
Furniture and fixtures 16,381 8,712 7,669
Computer hardware and software 49,772 36,641 13,131
Production equipment 173,717 55,421 118,296
Intangibles 13,113 3,516 9,597
Leasehold improvements 3,558 2,839 719
------- ------- -------
258,597 107,796 150,801
======= ======= =======
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.
5. LOAN PAYABLE - OTHERS
The loan payable - others is non-interest bearing and has no fixed
repayment terms.
<PAGE> F-27
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
6. 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 May 1, 2000 to October 31, 2000, the amount of
future income taxes payable recorded in the accounts were $5,710.
7. 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>
November 19, 1998
issued 16,000,000 16,000 191,289 -
Net earnings, November
19, 1998 to April 30,
1999 - - - 38,929
---------- ------ ------- ------
Balance,
April 30, 1999 16,000,000 16,000 191,289 38,929
February 21, 2000
- issued shares in
exchange of 100% of
Grand Entertainment
& Music G.E.M. Inc.
(Canada) 1,683,000 1,683 431,960 -
---------- ------ ------- ------
Balance,
February 21, 2000 17,683,000 17,683 623,249 38,929
Net earnings
May 1, 1999 to
April 30, 2000 - - - 62,999
---------- ------ ------- ------
Balance,
April 30, 2000 17,683,000 17,683 623,249 101,928
Net earnings
May 1, 2000 to
October 31, 2000 - - - 11,085
---------- ------ ------- ------
Balance,
October 31, 2000 17,683,000 17,683 623,249 113,013
========== ====== ======= =======
</TABLE>
<PAGE> F-28
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
8. 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
9. 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.
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.
