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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of The Securities Exchange Act of 1934
SUMMEDIA.COM INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
COLORADO 95-4734398
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(State or Other Jurisdiction of Incorporation or (I.R.S Employer Identification No.)
Organization)
</TABLE>
1200-1055 WEST HASTINGS STREET
VANCOUVER B.C. CANADA V6E 2E9 V6E 2E9
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(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (604) 605-0901
Securities to be registered pursuant to Section 12(b) of the Act.
Title of each Class Name of exchange on which
registered
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Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
In December 1990, Pursuit Ventures Corporation (Pursuit) was
incorporated in the State of Delaware. In August 1998, Pursuit Ventures
Corporation merged with Remington Assets Limited (Remington), a Colorado
corporation incorporated in March 1997. At the time, Pursuit was the parent of
Remington. Under the terms of the merger, Pursuit became the surviving entity.
As this transaction was between entities under common control it has been
accounted for on a basis similar to a pooling of interests. In September 1998,
Pursuit changed its name to Reliance Resources Inc. On August 6, 1999, Reliance
Resources Inc. entered into a share exchange agreement with SUM Media Corp.
(formerly known as E-Com Media Corp.), a British Columbia, Canada Internet media
and marketing company. Pursuant to the terms of the exchange agreement, Reliance
Resources Inc. issued 3,200,000 common shares to acquire all of the issued and
outstanding shares of SUM Media Corp. Immediately after the share exchange,
Reliance Resources Inc. focused its operations on Internet media and marketing.
From inception to the date of the share exchange, Reliance Resources Inc. and
all of its predecessor corporations were inactive companies. On August 25, 1999,
Reliance Resources Inc. changed its name to SUMmedia.com Inc. (the "Company" or
"SUMmedia.com")
On August 30, 1999, SUMmedia.com received approval to change its
trading symbol on the over-the-counter bulletin board from "PSVC" to "ISUM."
SUMmedia.com is a development stage company.
(b) BUSINESS OF THE ISSUER
Business
SUMmedia.com is an Internet media and marketing company that provides
online coupons, or "eCoupons," for small businesses through its portal,
savingumoney.com. SUMmedia.com's goal is to provide Internet marketing
initiatives for smaller businesses lacking the expertise or financial resources
to carry on "eCommerce." In addition to its current eCoupon operations,
SUMmedia.com receives revenue from the sale of banner advertisement space on its
websites and from the sale of web sites it custom develops for its customers.
SUMmedia.com plans to develop, market and support online marketing and
promotional activities for web site hosting, as well as online shopping
"storefronts" that enable small businesses to cost effectively utilize the
Internet, regardless of their size, resources or global address.
SUMmedia.com plans to address the following issues that are frequently
encountered by development stage companies in new and rapidly evolving markets:
o protecting and enhancing its corporate brand, SUMmedia.com, through
investment relationships, strategic links, public relations and
traditional trademark protection protocols;
o protecting and enhancing its eCoupon web site, savingumoney.com,
through aggressive marketing and contracting with a search engine
optimization specialist;
o expanding its products and services and increasing the value of its
eCouponing services;
o increasing the amount of Internet traffic to SUMmedia.com and
savingumoney.com, as well as other company web sites currently under
development;
o increasing the number and types of its business customers;
o attracting, retaining and motivating qualified personnel; and
o developing the company's financial, information technology and
operations infrastructure.
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PROTECTING AND ENHANCING ITS CORPORATE BRAND, SUMMEDIA.COM.
The business partnerships and relationships that SUMmedia.com intends
to create are important components of protecting and enhancing its corporate
brand. These relationships will attempt to provide brand enhancing benefits,
including:
o credibility in current and future markets;
o newspaper and online advertising space on a contra basis where key
business partners will be offered SUMmedia.com services or shares in
consideration for the key business partners' services. This is
anticipated to help enhance the value of such relationships to both
parties as each will have a vested interest in the other's success;
and
o product innovations, including wireless applications and secured
eCoupons.
Another tool SUMmedia.com uses to protect and enhance its corporate
brand is the seamless integration of the SUMmedia.com brand into all of its web
sites. From its savingumoney.com web site, to the sites developed and hosted for
its customers, corporate branding will be reinforced via a "powered by
SUMmedia.com" message that will directly link to SUMmedia.com's corporate web
site.
SUMmedia.com also utilizes traditional public relations methods to
enhance its corporate brand. SUMmedia.com's news releases, press conferences and
editorial coverage include specifics about SUMmedia.com designed to reinforce
its corporate brand with the investment community and prospective customers and
eCoupon users.
Lastly, SUMmedia.com has endeavored to protect all of its various
brands through traditional trademark protection protocols.
PROTECTING AND ENHANCING ITS ECOUPON WEB SITE, SAVINGUMONEY.COM.
SUMmedia.com's primary web site, savingumoney.com, is now operational
in several Canadian markets, either directly or through business alliances with
third parties. In addition, support offices are open in the following locations:
o Seattle, Washington: U.S. corporate office; Seattle marketing launched
in mid-February 2000;
o Hong Kong: joint venture; marketing launch anticipated in early March
2000; and
o Sydney, Australia: joint venture; marketing launch pursuant to a non
binding agreement with ISEC Ltd. anticipated in early April 2000. ISEC
is expected to deliver the savingumoney.com concepts to Internet
consumers in Australia and New Zealand.
It is anticipated that the opening of new markets will protect and
enhance the savingumoney.com brand by providing broader geographic coverage.
However, management believes that the key component of enhancing the brand is to
secure its place on the consciousness of consumers. To this end, the following
marketing communications plans, at a total estimated cost of U.S. $10.7 million,
are in place:
o Canada: an online and traditional media launch at a cost of $3 million
for 2000;
o Seattle: a five-week online and traditional media launch at a cost of
$500,000, with an additional $1 million expected to be spent through
2000;
o U.S.: new U.S. territory initial advertising launches at a cost of $3
million to be spent through 2000 for territories yet to be identified;
o Hong Kong: a five-week integrated media launch at a cost of $400,000,
with another $800,000 expenditure expected through the remainder of
2000; and
o Sydney: an integrated, five-week launch at a cost of $500,000, plus an
additional $1.5 million expenditure through 2000.
In addition to the marketing launches listed above, SUMmedia.com's
management anticipates that a worldwide launch of its products to commence
during the next year would add at least another U.S. $50 million to its total
costs.
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EXPANDING SUMMEDIA.COM'S PRODUCTS AND SERVICES AND INCREASING THE VALUE OF ITS
ECOUPONING SERVICES.
Several product and service enhancements and innovations are at various
stages of their respective development cycles. The following are product and
service enhancements relating to savingumoney.com:
o easier to use design;
o data-driven eCoupons with improved consumer functionality; the
data-driven eCoupons will allow SUMmedia.com to more accurately
fulfill consumer requests as each coupon will have specific criteria
associated with them thus allowing searching to become more efficient;
o value-added services for members, such as email date reminders,
personalization and shopping lists;
o pop-up advertising features to be sold to eCoupon customers;
o "mini-Web sites" to be sold to customers desiring to expand their
eCoupon presence on SUMmedia.com's site;
o secured eCoupons aimed at satisfying the "retailer abuse" concerns
of major packaged goods manufacturers; and
o savingumoney.com "eMalls" in which eCoupon customers will be able to
sell their products online at themed online malls.
SUMideas.com, SUMmedia.com's Web site development/hosting service,
through which SUMmedia.com will introduce new services, such as a low-priced
entry level site design and hosting program (enabling customers to order and buy
online, as well as through SUMmedia.com's sales force), is also expected to
accelerate growth.
INCREASING THE AMOUNT OF INTERNET TRAFFIC TO SUMMEDIA.COM AND SAVINGUMONEY.COM
Management anticipates that the amount of traffic driven to
SUMmedia.com's web sites will be increased through SUMmedia.com's efforts to
enhance its corporate and eCoupon web site brands using the various marketing
and other initiatives described above. In addition, SUMmedia.com plans to use
strategic alliances and business partnerships to further enhance the traffic to
its company website.
SUMmedia.com also intends to contract for the services of a search engine
optimization specialist to promote savingumoney.com to higher search engine
rankings. A search engine optimization specialist is someone with specific
expertise in how search engines actually search the worldwide web in response to
a consumer's search for information. Due to their special expertise, a search
engine optimization specialist is able to make specific recommendations as to
the format and set up of the company's web page so that the company's web page
is promoted to higher search engine rankings. In addition to making format
changes, the search engine optimization specialist will put together submissions
to search engines so that they become aware of the company's page.
INCREASING THE NUMBER AND TYPES OF BUSINESS CUSTOMERS
Unlike the majority of its competitors, SUMmedia.com caters to the vast
number of smaller businesses and does not focus on Fortune 500-type companies.
The number of small businesses that are potential customers of SUMmedia.com is
continually growing, as new businesses are created every day. In addition,
management believes that many of these smaller businesses will be most likely to
use SUMmedia.com's ability to quickly and easily bring a business online.
Notwithstanding its targeted appeal to small businesses, SUMmedia.com
has also identified a strategy to attract large national/multinational brands to
its services. Management believes that there are many large companies that
remain skeptical of online couponing. While they are attracted by the timely and
inexpensive delivery of coupons via the Internet, large companies are concerned
about potential abuse by retailers. For example, one of their recurring concerns
is that retailers may simply print online coupons themselves and fraudulently
submit them for reimbursement by the manufacturers.
To address this issue, SUMmedia.com's senior information technology and
marketing personnel are working closely with SUMmedia.com's technology partners
to identify and develop a solution to the large national/multinational brands'
concerns. To date, efforts in this regard are still in the preliminary stages.
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ATTRACTING, RETAINING AND MOTIVATING QUALIFIED PERSONNEL
In order to attract, retain and motivate qualified personnel,
SUMmedia.com is adopting highly competitive and innovative human resource
policies. Salary structures and benefit programs will be equivalent to or
supersede those offered by others in similar businesses. In addition, most
employees will be offered employee stock options when they join SUMmedia.com.
Management believes that one of the keys to the success of the business is the
quality of its people. The policies and procedures of the Company will reflect
this belief.
DEVELOPING THE COMPANY'S FINANCIAL, INFORMATION TECHNOLOGY AND OPERATIONS
INFRASTRUCTURE
In order to support SUMmedia.com's operations in the areas of Internet
research, growth and maintenance of internal operations and geographical
expansion, the Company expects to spend approximately $4.0 million in the next
year. Internet research consists of staying current with technological changes
related to the Internet and ensuring that the Company's web site has competitive
content. The Company expects to employ 10 additional employees in the next year
to conduct ongoing Internet research. The growth and maintenance of internal
operations is required to match the expected growth in sales in the upcoming
year. Also, SUMmedia.com expects to spend approximately $1 million for hardware,
approximately $500,000 for software and add approximately 15 people to the
information technology team to meet the needs of expected growth in internal
operations. In addition, SUMmedia.com expects to spend approximately $1 million
on hardware, $500,000 on software, and add 10 employees in order to undertake
its planned geographical expansion. Total salaries for the additional
information technology employees required is anticipated to be approximately $1
million.
In addition to the technological staff requirements, management
anticipates that an additional 40 administration staff members will be required
to support the growth in other areas of SUMmedia.com's business. To handle the
new staff levels, management also anticipates requiring additional office space
and furniture. In total, the additions to administration staff and facilities
could add $5 million to SUMmedia.com's operational costs.
Product Offerings
Of its services, SUMmedia.com anticipates that eCoupons will be its
major source of revenue for the foreseeable future. SUMmedia.com's eCoupon
offerings are still in their infancy, and, as a result, the effectiveness of
eCoupons, as compared to traditional methods of reaching customers, cannot yet
be determined. SUMmedia.com hopes to demonstrate to corporate customers that its
eCoupons will increase the rate at which comparison shoppers become purchasers,
improve customer satisfaction on SUMmedia.com's web sites and offer a
cost-effective alternative to newspaper and magazine advertising. If
SUMmedia.com is unable to do this, its ability to attract and retain corporate
customers will likely be impaired.
SUMmedia.com offers three types of eCoupon contracts. For the first
type of contract, the "millennium special," the customer pays the company in
advance a non-refundable one-year fee to have its eCoupon posted on
SUMmedia.com's web site for a period of one year. Under the millennium special
contract, the customer is required to pay SUMmedia on signing their eCoupon
contract. Upon receiving the signed contract and payment, SUMmedia is then
obligated to develop the customer's eCoupon and post the eCoupon onto the
savingumoney.com website. The second type of contract that SUMmedia.com offers
provides for a one-year commitment in which the customer pays a monthly fee to
have its eCoupon posted on SUMmedia.com's web site. In this contract, the
customer obtains the first three months at no cost and does not have the right
to cancel. Under this contract, SUMmedia.com must develop the customer's eCoupon
and post the eCoupon onto the savingumoney.com website before the customer is
required to pay. Given that this contract has a three-month free period, it is
not expected that the eCoupon development or posting would cause a delay in
customer cash payment at the start of month four. The third type of contract
SUMmedia.com offers provides 90 days of free service to the customer, after
which time the customer may decide if they want to enter into a one-year
contract. If SUMmedia.com is unable to offer sufficient value to its customers
during the term of the 90-day contract, the customers may not renew their
contracts. If SUMmedia.com does not obtain a sufficient amount of contract
renewals, or if such renewal contracts are obtained on terms less favorable than
the original contracts, its business will be materially adversely affected. If
the customer does renew under this contract, the customer is required to begin
payment immediately as their eCoupon would already have been developed and
posted on the savingumoney.com website.
Revenues related to eCoupon contracts are recognized by SUMmedia.com
ratably over the duration of the contract. For contracts where customers have a
90-day free trial with the right to cancel, no revenue is recognized until the
customer enters into a one-year contract.
Currently, SUMmedia.com has approximately 3,200 eCoupon customers. Of
SUMmedia.com's 3,200 eCoupon customers, approximately 3,050 are doing business
under a 90-day promotional program (all figures represent eCoupon customers who
have signed a one year contract). All customers have contracts that span at
least one year. Less than five percent of the customers have contracts greater
than one year.
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SUMmedia.com also generates revenues from web page design and
development. The amount charged to the customer for the web page design is based
on the length of time required to develop the customer's web pages. All details
of the web page design are outlined in a contract which is signed and approved
by the customer. Upon signing the contract, the customer is required to make a
50% non-refundable deposit. Upon completion of the web page and approval by the
customer, the remaining 50% is payable. The company recognizes revenues related
to web page design using the completed contract method as the duration of the
contract is typically short. In addition, any deposits received by the company
related to web page design are deferred until the contract is completed. The
market for the creation of web pages is very competitive. Management hopes to
use the contacts it has established through its eCoupon business to obtain web
page development work. SUMmedia.com recognizes revenues related to the
development of customer web pages using the completed contract method. To date,
revenues from this source have been insignificant.
A third source of revenue for SUMmedia.com is regional exclusivity
fees. Regional exclusivity fees represent amounts paid to the company for the
exclusive right to market the company's products in a predefined geographic
region. The customer is required to pay the regional exclusivity fee prior to
SUMmedia.com performing any tasks related to the initial set up and training.
The exclusivity fee charge depends on the number of customers in the region
being granted and the percentage of those customers who are expected to use the
Internet. Revenues from regional exclusivity fees are recognized when the
initial set up and training services are complete and the company is satisfied
that all significant obligations in accordance with the terms of the arrangement
have been met and collectibility of the related fees is reasonably assured.
An incidental revenue source for SUMmedia.com is banner ad advertising,
pursuant to which SUMmedia.com customers pay for the right to advertise on one
of the SUMmedia.com web sites. Generally, contracts for banner ads range from
one month to one year in duration. Currently, over 90% of SUMmedia.com's banner
ad contracts are for periods from one to three months. Under banner ad
contracts, SUMmedia.com is required to develop the customer's banner ad and post
it onto the appropriate SUMmedia.com website before the customer is required to
pay in cash. The company recognizes revenues related to banner ads ratably over
the term of the banner ad contract. To date, revenues from this source have been
insignificant. It is anticipated that revenues from Internet advertising, as
opposed to eCoupon revenue, will provide an incidental portion of SUMmedia.com's
future revenues. Because the Internet advertising market is new and rapidly
evolving, SUMmedia.com cannot yet gauge its effectiveness, as compared to
traditional advertising media. Advertisers who have traditionally relied on
other advertising media may be reluctant to advertise on the Internet in the
belief that Internet advertising is less effective than traditional advertising
media for promoting their products and services. Consequently, advertisers may
allocate only limited portions of their advertising budgets to Internet
advertising. Another risk lies in the deep discounting offered by online
advertising, a strategy that SUMmedia.com believes it must match for the
foreseeable future in order to penetrate this market. Deep discounting occurs
when companies charge rates that are barely profitable, or even loss-leading
rates, in order to gain a presence on the web. SUMmedia.com expects that, as the
Internet matures, deep discounting will subside. Since Internet advertising is
not expected to be a significant revenue source, the effect of deep discounting
on SUMmedia.com's operations will likely be negligible.
SUMmedia.com does not expect to encounter any issues with tracking each
of its revenue streams, as revenues from exclusivity fees and web page
development are based on agreements entered into with the Company's customers.
In addition, coupon and banner add revenues are earned over specified time
periods. Similarly, revenue streams should not be affected by SUMmedia.com's
customers or SUMmedia.com's customers' actions.
Sales Channels
SUMmedia.com employs a direct sales team of approximately 60 full-time
employees in North America. The sales team are paid with a base salary and a
commission based on products sold. The direct sales team gains and retains
customers through door-to-door, phone, Internet and mail solicitation.
Additionally, via its web site, SUMmedia.com offers users the ability to
recommend the service to friends and associates. SUMmedia.com is also currently
exploring an employee referral program. In the future, SUMmedia.com plans to use
strategic business alliances and partnerships to help increase its customer base
further.
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Currently, SUMmedia.com offers its services to Canadian customers
through its British Columbia, Alberta and Ontario eCoupon portals. Additionally,
SUMmedia.com offers its services to U.S. customers directly via its Seattle
eCoupon portal, launched in February 2000, and through Canadian companies that
are marketing to the traveling public, including U.S. travelers. SUMmedia.com is
currently identifying other key market opportunities in the U.S. and expects to
rollout in these markets throughout the current year.
SUMmedia.com also anticipates adding customers in Australia, Hong Kong,
Japan, Malaysia, Singapore and Europe, based on anticipated rollouts in those
countries throughout 2000. It is anticipated that, in all rollouts, the product
lines and services offered will be virtually identical to the products and
services presently offered by the Company.
Competition
There are a significant number of sites on the Internet offering
coupons for use online and offline. Two of SUMmedia.com's most significant
competitors are ValuPage.com and CoolSavings.com. ValuPage.com is a grocery-only
coupon site, while CoolSavings.com is exclusively focused on nationally branded
products and national retail chains. CoolSavings.com carries coupons for
approximately 300 companies. In addition to these two significant competitors,
there are numerous smaller online coupon sites, as well as companies using
traditional media such as newspaper inserts, direct mail flyers and co-op
envelopes to distribute their coupons. Many of SUMmedia.com's existing
competitors, as well as potential new competitors, have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than SUMmedia.com.
Intellectual Property
SUMmedia.com is attempting to be proactive in protecting its
intellectual property rights. It has filed five trademark applications in
Canada, Hong Kong, the U.S. and the European Union and is in the process of
filing applications in Australia and additional ones in the U.S. SUMmedia.com
filed copyright registrations in Canada for its web site designs in February
2000. SUMmedia.com owns approximately 20 domain names and is in the process of
protecting them with trademarks. SUMmedia.com is in the process of applying for
a U.S. patent for certain elements of its technology.
Pursuant to Canadian intellectual property laws, copyright protection,
at a base level, is acquired automatically in Canada for the computer programs
and web site designs developed by SUMmedia.com employees. Canadian law provides
a higher level of copyright protection once the copyright is registered.
SUMmedia.com anticipates filing copyright applications for SUMMEDIA and SAVING U
MONEY in the near future.
In general, SUMmedia.com plans to protect its copyrights, service
marks, trademarks, and trade secrets through a combination of laws and
contractual restrictions, including confidentiality and non-disclosure
agreements. For example, SUMmedia.com may elect to register its trademarks and
service marks in the United States and internationally. However, effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which SUMmedia.com's services are made available
online. Because SUMmedia.com is devoting significant resources to building its
brands, primarily "savingumoney.com" and "SUMmedia.com," through media
advertising campaigns, if it is not granted registered status for the trade and
service marks for which it has applied, or if it is unable to defend its
intellectual property rights, its business may be materially and adversely
affected.
Computer programs and web site designs, or portions thereof, that have
been developed by independent contractors and consultants engaged by
SUMmedia.com are supported by agreements to transfer the copyright and ownership
rights to SUMmedia.com. Non-disclosure, assignment of invention and
non-competition agreements are required to be delivered by all employees and
consultants of SUMmedia.com to ensure that any individual ownership rights in
intellectual property are transferred to SUMmedia.com.
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Regulation
Any new law or regulation pertaining to the Internet, or the
application or interpretation of existing laws, could decrease the demand for
SUMmedia.com's services, increase its cost of doing business or otherwise have a
material adverse effect on its business. There is, and will likely continue to
be, an increasing number of laws and regulations pertaining to the Internet.
These laws or regulations may relate to liability for information retrieved from
or transmitted over the Internet, online content regulation, user privacy,
taxation, and the quality of products and services. Furthermore, the growth and
development of electronic commerce may prompt popular demand for more stringent
consumer protection laws that may impose additional burdens on electronic
commerce companies. Moreover, the applicability to the Internet of existing laws
governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal privacy and
other issues is uncertain and developing.
SUMmedia.com will file tax returns in such jurisdictions as required by
law based on principles applicable to traditional businesses. However, one or
more jurisdictions could seek to impose additional income tax obligations or
sales tax collection obligations on foreign companies, such as SUMmedia.com,
which engage in or facilitate electronic commerce. A number of proposals have
been made at state and local levels that could impose such taxes on the sale of
products and services through the Internet or the income derived from such
sales. Such proposals, if adopted, could substantially impair the growth of
electronic commerce and adversely affect SUMmedia.com's business.
Research and Development
During the year ended December 31, 1999, SUMmedia.com expended $97,014
on research and development. No costs were incurred in prior years. Research and
development costs consisted primarily of payments to outside contractors and
associated expenses related to engineering design work and testing of
SUMmedia.com's technology. SUMmedia.com expects to spend approximately $500,000
on research and development and related activities in the year 2000. These
activities include the design of new company web pages and the development of
new coupon delivery technologies. Amounts expended will consist primarily of
salaries to company employees and fees paid to consultants.
Employees
As of December 31, 1999, SUMmedia.com had 89 employees (including 16 in
Toronto, Ontario, 57 in Vancouver, British Columbia, and 16 in Seattle,
Washington). SUMmedia.com has never experienced an employee organized work
stoppage, and no employees are represented under collective bargaining
agreements. SUMmedia.com considers relations with its employees to be good.
SUMmedia.com plans to open corporate or joint venture sales offices in 15 new
cities or regions over the next 12 months. Each launch of a business in a new
region is expected to require the addition of approximately 25 employees. As a
result, the company expects to add approximately 375 additional employees during
2000.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATION
Forward-Looking Statements
This document contains certain forward-looking statements that involve
risks and uncertainties, such as statements of SUMmedia.com's plans, objectives,
expectations and intentions. When used in this document, the words "expects,"
"anticipates," "intends," "plans" and similar expressions are intended to
identify certain of these forward-looking statements. The cautionary statements
made in this document should be read as being applicable to all related forward
- -looking statements wherever they appear in this document. SUMmedia.com's actual
results could differ materially from those discussed in this document.
Cash requirements
The company has not yet generated significant revenues, has no
assurance of future profitability and has losses from operations. These factors
raise concerns about the company's ability to continue as a going concern. To
address these issues, management is continuing to aggressively pursue additional
financings. Subsequent to December 31, 1999, the company has raised an
additional $9,260,700 from new financings to fund operations. Management plans
to continue to pursue additional new financings to fund operations until it is
able to generate significant revenues and profits from its business operations.
SUMmedia.com believes that its existing cash and cash sources will not
be sufficient to fund its losses from operations, its capital expenditures and
other obligations beyond the next three months. If SUMmedia.com is not
successful in generating sufficient cash flow from operations or in raising
additional capital when required in sufficient amounts and on terms acceptable
to SUMmedia.com, its business, financial condition and operating results will be
materially adversely affected.
As detailed in previous sections, SUMmedia.com anticipates that at
least $70 million U.S. will be required over the next 12 months to fund the
following: opening of new markets and generating brand awareness ($10.7
million), worldwide launch of SUMmedia.com products ($50 million), expansion and
improvement of the company's financial and information technology infrastructure
($4.0 million), expansion and improvement of the Company's operations
infrastructure ($5.0 million), and continued research and development activities
($0.5 million).
In order to meet the expected cash deficiency and liquidity issues,
SUMmedia.com's management team is aggressively pursuing third-party investors
and strategic alliances. In addition, previously completed private sales of
securities included warrants that allowed investors to invest an additional $13
million in SUMmedia.com within one-year of the date of the purchase of the
warrant.
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Research and Development
During the next 12 months, SUMmedia.com intends to expend approximately
$500,000 in the pursuit of Internet research and development. These expenditures
will relate to the development of new company web pages and the development of
new coupon delivery technologies. Amounts to be expended include salaries for
company employees and fees paid to consultants.
Purchases of significant equipment
SUMmedia.com had commitments of approximately $810,000 related to
capital expenditures at December 31, 1999. Such expenditures will primarily be
for computer equipment and software for SUMmedia.com's enterprise-wide systems.
SUMmedia.com also has total minimum lease obligations of $1,264,663 under
certain operating leases, and $72,257 in capital leases, through October 2004.
Results of Operations
SUMmedia.com commenced operations as an Internet media and marketing
company on August 6, 1999 with its purchase of all the issued and outstanding
shares of SUM Media Corp. From inception (December 7, 1990) to August 6, 1999,
SUMmedia.com was an inactive "shell" with no operations or revenues; it had an
accumulated deficit of approximately $60,000, comprised mainly of general and
administrative costs (legal, audit, etc.). As a result, comparative figures are
not meaningful and are, therefore, not included in this discussion.
SUMmedia.com reports in its financial statements in the U.S. dollar,
but in 1999 its functional currency shifted to the Canadian dollar due to a
change in SUMmedia.com's principal business activity. While management expects
SUMmedia.com's functional currency to soon return to the U.S. dollar, it does
not anticipate exchange rate or inflation forces to be material until that time
because historical analysis of the two currencies shows relative stability.
SUMmedia.com incurred a deficit of $8.3 million from August 6, 1999 to
December 31, 1999, due to stock based compensation, operating expenses,
marketing and branding development, goodwill amortization and continuing costs
of raising capital.
- --------------------------------------------------------------------------------
page 10
<PAGE> 11
Revenues for the year ended December 31, 1999 were $132,051.
Approximately 36% of SUMmedia.com's revenues for the year ended December 31,
1999 were derived from exclusivity fees from Canadian businesses. These regional
exclusivity fees represent amounts earned by the Company for the set up and
training related to the regional exclusivity licenses sold for the exclusive
right to market the company's products in three predefined geographical regions:
Kelowna, B.C., Victoria, B.C. and Calgary, Alberta. The balance of
SUMmedia.com's revenues were derived from eCoupon sales revenue (approximately
37%) which was earned by the Company for each month that SUMmedia.com eCoupons
are posted on the savingumoney.com website, website development revenue
(approximately 18%) which was earned by the Company on the completion of the
development of customers' websites and online advertising on SUMmedia.com's web
site (approximately 9%) which was earned by the company for each month that
customer's banner ads are posted on a SUMmedia.com website.
General and administrative expenses for the year ended December 31,
1999 were $2.4 million. These expenses are generally attributed to the hiring of
over 55 administrative staff to build the infrastructure of SUMmedia.com in
areas of executive management, administrative personnel and technical support
for SUMmedia.com's offices, at a cost of approximately $600,000. Another
significant expenditure was travel expenses associated with trips to the United
States, Australia and Asia to secure financing and business partners for
SUMmedia.com at a cost of approximately $300,000. Leased office space consisted
of approximately 16,200 square feet at December 31, 1999, resulting in a cost of
approximately $130,000. General and administrative expenses also include
approximately $260,000 relating to startup and business expansion costs relating
to SUMmedia.com's Hong Kong joint venture interest. SUMmedia.com anticipates
that general and administrative expenses will continue to increase as
SUMmedia.com pursues its product rollouts by expanding to new cities and
regions.
In conjunction with the acquisition of SUM Media Corp. on August 6,
1999 (the "Acquisition"), the following transactions occurred concurrently with
the Acquisition. Tigerlily Financial Inc. ("Tigerlily") and Cambridge Asset
Holdings S.A. ("Cambridge"), consultants to the companies in arranging the
transaction, each acquired 1,125,000 common shares of SUM Media Corp. for
nominal consideration from two significant shareholders. These common shares
were immediately exchanged for a total of 800,000 common shares of the company
pursuant to the Acquisition. Tigerlily and Cambridge invested a total of
$1,000,000 in the company for 1,000,000 units consisting of one common share and
one share purchase warrant entitling the holder to purchase one common share at
a price of $3 per share for a period of 24 months. These units were transferred
by Tigerlily and Cambridge to two significant shareholders of the company who
were officers and directors of the company. Based on the above, the Company
recorded an issuance of 800,000 common shares to Tigerlily and Cambridge for
cash proceeds of $1,000,000. The fair value of the 800,000 common shares, based
on the quoted market value of the Company's stock on the OTC bulletin board of
$3.75 per share at the time the private placement was announced, exceeded the
proceeds received by the Company by $2,000,000. Of this amount, $1,000,000 has
been allocated as a direct cost of the Acquisition and the remaining $1,000,000
has been recorded as stock based compensation related to other services provided
to the Company and its shareholders prior to the Acquisition. The two
significant shareholders effectively received the 200,000 common shares and
1,000,000 share purchase warrants which have been recorded as stock based
compensation expense in the amount of $1,500,000. The costs related to the SUM
Media Corp. acquisition and the stock based compensation that arose from the
transaction were one time costs and management does not expect to incur such
costs on an ongoing basis.
Research and development costs amounted to $97,000 for the year ended
December 31, 1999. Research and development costs were primarily comprised of
payments to outside contractors and expenses related to engineering design work
and testing of SUMmedia.com's technology. Product development expenses are
expected to increase to approximately $500,000, primarily due to the payment of
consulting fees and salaries related to the development of additional web sites
and new eCoupon technologies.
During the year ended December 31, 1999, SUMmedia.com incurred $1.4
million on various sales and marketing costs, of which $450,000 was spent on
salaries for over 40 new sales and marketing employees, with the remainder being
spent on promotional activities. SUMmedia.com's sales and marketing expenses are
comprised primarily of compensation for SUMmedia.com's sales and marketing
personnel, advertising, tradeshow and other promotional costs and expenses for
creative design of SUMmedia.com's websites. These costs resulted primarily from
growth in the number of personnel, increases in online, radio, and international
advertising and third-party services. Sales and marketing expenses are expected
to increase in the near term due to branding, advertising and marketing
expenses, as well as incremental expenses associated with personnel additions
expected to be made in the next year.
Amortization expense related to property and equipment was $97,000 for
the year ended December 31, 1999 during which period SUMmedia.com purchased
computers, office equipment, furniture and fixtures and software at a total cost
of $1.6 million. In addition, on the purchase of SUM Media Corp. SUMmedia.com
acquired $283,000 of property and equipment consisting primarily of computer
equipment ($168,000) and a leased promotional vehicle (a large four-wheel drive
military style truck decorated with the savingumoney.com logo) ($107,000).
Amortization expense related to Goodwill on the purchase of SUM Media Corp. was
$1.0 million for the year ended December 31, 1999.
For the year ended December 31, 1999, SUMmedia.com incurred an
allowance for doubtful accounts of $11,133 (approximately 15% of the outstanding
A/R balance at December 31, 1999). This level of allowance was required
primarily due to the fact that the majority of the SUMmedia.com's customers are
small to medium sized businesses or startups. These types of businesses are
typically more likely to have payment problems. Management does not expect the
current allowance for doubtful accounts to accounts receivable relationship to
continue as management has started implementing a stricter policy where
customers are required to pay for services in advance. As a result, management
believes that its current revenue recognition policies are appropriate.
- --------------------------------------------------------------------------------
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<PAGE> 12
Liquidity and Capital Resources
At December 31, 1999, SUMmedia.com had $2,108,167 in cash, working
capital of $997,998 and shareholders' equity of $15,190,780. Net cash used in
SUMmedia.com's operating activities was $3,082,010 for the year ended December
31, 1999. Net cash flows used in operating activities consisted primarily of a
loss for the year of $7,594,282. The loss for the year was offset by non-cash
stock-based compensation charges of $2,500,000 and amortization of property and
equipment and goodwill of $1,898,641. The change in the Company's net working
capital also contributed $834,120 to operating cash flows.
Cash flows from financing activities of $6,562,834 were derived
primarily from $7,309,000 of proceeds received from the issuance of common
shares. Subsequent to December 31, 1999, the Company issued 308,000 common
shares to Enrich Investment Holdings Ltd. for gross cash proceeds of $1,001,000,
1,000,000 common shares to Hollinger Digital Inc. for gross cash proceeds of
$4,000,000, 159,900 common shares to Core Pacific - Yamaichi International
(H.K.) Limited for gross cash proceeds of $479,700, 700,000 common shares to
e-Kong Group Ltd. for gross cash proceeds of $3,675,000 and 20,000 common shares
to Eastern Dragon Enterprises Ltd. for gross cash proceeds of $105,000. The
$9,260,700 gross cash proceeds raised from the issuance of 2,187,900 common
shares subsequent to December 31, 1999 improved the company's liquidity and
capital resources. In conjunction with the issuance of common shares to
Hollinger Digital Inc. the company agreed to spend $4,000,000 in advertising
over the next year in Hollinger related media. In conjunction with the issuance
of common shares to Holliger Digital Inc., the Company agreed to spend
$4,000,000 in advertising over the next year in Hollinger related media.
Cash flows used in investing activities of $1,340,712 related primarily
to purchases of property and equipment of $1,558,017. This amount was offset by
$212,591 of cash received on the acquisition of SUM Media Corp.
Since SUMmedia.com has no significant revenues, working capital will
continue to be depleted by operating expenses. In an effort to improve the
company's working capital going forward, the company's management is attempting
to increase revenues through marketing and branding efforts and through the use
of strategic alliances. The anticipated shortfall in working capital for the
next year is expected to be eliminated through the aggressive pursuit of
third-party investors and strategic relationships by company management.
For the year ended December 31, 1999, SUMmedia.com financed its
operations primarily through private sales of securities and unsecured advances
from the founders of SUM Media Corp. Dilutive equity issuances completed during
the year, including options granted to employees and warrants granted in private
sales of securities to third party investors, will, to the extent they are
exercised, improve the company's liquidity and capital resources. While the
issuance of shares does raise funds to develop the company's business, the
continued issuance of shares may erode the company's share price and as a result
reduce the amount of capital that the company is able to raise per share.
SUMmedia.com's funding needs may vary depending upon a number of
factors, including the number and nature of the marketing and sales launch
initiatives; progress of SUMmedia.com's research and development programs; the
number and breadth of these programs; the progress of the development and
commercialization efforts of new products; and competing technological and
market developments. In the future, SUMmedia.com will need to raise substantial
additional funds to continue to conduct its branding, marketing plans, research
and development, and to implement enterprise-wide infrastructure programs.
SUMmedia.com intends to seek additional funding through public or private
financing and up-front licensing fees of its technology. There can be no
assurance that such funds will be available on favorable terms, if at all. If
adequate funding is not available, SUMmedia.com may be required to delay, reduce
or eliminate one or more of its marketing strategies or research and development
programs. These changes may also require SUMmedia.com to seek funding on less
favorable terms than it would otherwise.
- --------------------------------------------------------------------------------
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<PAGE> 13
Year 2000 Issues
Some currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field and cannot
reliably distinguish dates beginning on January 1, 2000 or January 1, 2001 from
dates prior to the year 2000 or 2001. Many companies' software and computer
systems may need to be upgraded or replaced in order to correctly process dates
beginning in 2000 or 2001 and to comply with the "Year 2000" requirements.
SUMmedia.com has reviewed its internal programs and has determined that there
are no significant Year 2000 issues within SUMmedia.com's systems or services.
SUMmedia.com has completed modifications to its internal systems to fix
identified Year 2000 issues in an attempt to ensure Year 2000 compliance. The
costs of these modifications have not been material and have involved a
reallocation of internal resources rather than incremental expenditures.
SUMmedia.com believes that its own software is Year 2000 compliant. However,
while SUMmedia.com has not experienced Year 2000 related problems in the past,
it could face unexpected expenses to fix any Year 2000 issues or unanticipated
website outages, either of which would harm its business. In addition,
SUMmedia.com uses third-party equipment and software that may not be Year 2000
compliant. SUMmedia.com is also conducting a further review of third-party
software and embedded systems used in its online business. In addition,
SUMmedia.com expects that the incremental cost of all of these reviews will not
exceed $50,000. The cost of any necessary upgrades or changes cannot currently
be estimated. SUMmedia.com may be harmed if necessary upgrades or changes are
not identified, or, if identified, are not timely and successfully implemented
at an acceptable cost. SUMmedia.com also may be harmed by Year 2000 problems of
its vendors and business partners. For example, SUMmedia.com may rely on credit
card companies to collect the majority of its revenues from users. Due to the
nature of the credit card system, some industry analysts have questioned the
effect of the year 2000 on credit card processing and billing. Failure of
SUMmedia.com's credit card vendors or other third-party equipment or software
vendors to properly process dates for the year 2000 and thereafter could require
it to incur unanticipated expenses in seeking alternative means of payment or
hardware or software replacements. It also could result in loss of revenues or
unanticipated website outages. SUMmedia.com's marketing efforts are also
dependent on the continued operation of Internet portals and other Internet
sites on which it advertises.
Although SUMmedia.com has not yet developed contingency plans with
respect to collecting payment under these circumstances, it is unable to make
such contingency plans if any significant number of the computers constituting
the Internet fail to process dates properly for the year 2000 or 2001 and there
is a system-wide slowdown or breakdown. SUMmedia.com's business is dependent on
the continued successful operation of the Internet. Any interruption or
significant degradation of Internet operations due to Year 2000 problems could
harm SUMmedia.com's business.
- --------------------------------------------------------------------------------
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<PAGE> 14
Quantitative and Qualitative Disclosure about Market Risk
SUMmedia.com's exposure to market risk is principally confined to its
cash and cash equivalents and available-for-sale securities, which have short
maturities and are held with high credit quality financial institutions and,
therefore, are believed to involve minimal market risk.
Currently, the Company's operations are primarily conducted in Canada.
However, as the Company expands its operations into the U.S., and other
geographic areas such as Asia and Europe it will be exposed to foreign currency
risks arising from the movements in the Canadian dollar relative to other
foreign currencies. The Company does not plan on using hedges to mitigate this
risk.
<TABLE>
<CAPTION>
U.S. to Canadian
Dollar
Exchange rates 1999 1998 1997 1996 1995
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Year-end 1.4433 1.5333 1.4305 1.3706 1.3640
Average for the period 1.4858 1.4831 1.3844 1.3636 1.3726
Range 1.4433-1.5087 1.4198-1.5685 1.3470-1.4305 1.3383-1.3747 1.3417-1.4072
</TABLE>
Business Overview
SUMmedia.com is an Internet media and marketing company that provides
online coupons, or eCoupons, for small businesses through its portal,
savingumoney.com. SUMmedia.com's goal is to provide Internet marketing
initiatives for smaller businesses lacking the expertise to exploit eCommerce
opportunities.
Future Acquisitions
SUMmedia.com will consider strategic acquisitions of companies with
a strong brand identity and with customer and product information databases that
augment its databases. It will be SUMmedia.com's practice to allow the acquired
company's management team to retain responsibility for critical front-end
business functions such as merchandising, creative presentation and marketing,
while consolidating operational functions under its organization to realize
economies of scale.
ITEM 3. DESCRIPTION OF PROPERTY
SUMmedia.com conducts all of its operations from leased and sub-leased
facilities at various locations. SUMmedia.com believes that its current
facilities will be adequate for its current and foreseeable future needs,
although future additions will be required with the establishment of any new
offices under SUMmedia.com's expansion plans.
The following table sets forth certain information relating to SUMmedia.com's
facilities:
<TABLE>
<CAPTION>
Location Size (sq. ft) Use Lease Expiration
<S> <C> <C> <C>
Vancouver, BC, Canada 8,800 Headquarters and sales office July 31, 2003
Toronto, ON, Canada 3,500 Sales office September 30, 2004
Seattle, WA, USA 3,900 Sales office October 31, 2004
</TABLE>
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<PAGE> 15
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of SUMmedia.com's common stock as of February 25, 2000 for:
o each person or entity known by SUMmedia.com to beneficially own more
than 5% of its outstanding common stock;
o each of its directors and named executive officers; and
o all of SUMmedia.com's directors and named executive officers as a
group.
Unless otherwise indicated by footnote, the address for each of the
individuals listed in the table is care of SUMmedia.com, 1200 - 1055 West
Hastings Street, Vancouver, B.C., V6E 2E9, Canada. Unless otherwise indicated by
footnote, the persons named in the table have sole voting and sole investment
power with respect to all shares of common stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF
OR NAME OF OFFICER OR DIRECTOR BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
------------------------------------ -------------------- -------------------
<S> <C> <C>
Grant M. Petersen(2) 4,951,994 26.2%
John E. Veltheer(3) 148,000 *
Philip Kunsberg(4) 12,000 *
Frank Palmer(5) 24,000 *
Derrick Bulawa(6) 12,000 *
Arvid C. Petersen(7) 24,000 *
Johnson Chan(8) 24,000 *
All Officers and directors as a group
(7 persons) 5,195,994 27.3%
Dennis Molloy(9) 4,932,794 26.2%
Charmford Limited(10) 2,016,000 10.4%
Hollinger Digital Inc.(11) 2,000,000 10.4%
</TABLE>
- --------------------
* Less than one percent.
(1) Percentage of beneficial ownership is based on 18,310,400 shares of common
stock issued and outstanding as of February 25, 2000.
(2) Includes stock options for 67,000 shares currently exercisable, or
exercisable within 60 days and warrants for 500,000 shares exercisable or
exercisable within 60 days. Includes 3,029,794 shares owned of record on
August 6, 1999 by nominees for Mr. Petersen as to which shares Mr.
Petersen effectively possesses sole voting and investment powers. None of
such nominee relationships were initially embodied in formal written
agreements. Mr. Petersen has subsequently obtained stock powers covering
786,439 shares formerly owned of record by certain of the nominees.
(3) Includes options for 48,000 shares currently exercisable or exercisable
within 60 days.
(4) Mr. Kunsberg's address is Suite 600, 270 Lafayette St., New York, NY.
Includes options for 12,000 shares currently exercisable or exercisable
within 60 days.
(5) Mr. Palmer's address is Suite 600, 777 Hornby St., Vancouver, BC. Includes
options for 24,000 shares currently exercisable or exercisable within 60
days.
(6) Mr. Bulawa's address is Suite 2101-3, K. Wah Centre, 191 Java Road, North
Point, Hong Kong. Includes options for 12,000 shares currently exercisable
or exercisable within 60 days.
(7) Mr. Petersen's address is 6 Carrington Ave., Mosman, NSW, Australia.
Includes options for 24,000 shares currently exercisable or exercisable
within 60 days.
(8) Mr. Chan's address is Suite 1276, 1 Trademart Drive, Cowloon Bay, Hong
Kong. Includes options for 24,000 shares currently exercisable or
exercisable within 60 days.
(9) Mr. Molloy's address is 24446 80th Avenue, Langley, B.C., Canada. Includes
48,000 shares underlying stock options currently exercisable, or
exercisable within 60 days and warrants for 500,000 shares currently
exercisable or exercisable within 60 days. Includes 3,029,794 shares owned
of record on August 6, 1999 by nominees for Mr. Molloy as to which shares
Mr. Molloy effectively possesses sole voting and investment powers. None
of such nominee relationships were initially embodied in formal written
agreements. Mr. Molloy has subsequently obtained stock powers covering
786,439 shares formerly owned of record by certain of the nominees.
(10) Charmford Limited's address is Suite 2101-3, K. Wah Centre, 191 Java Road,
North Point, Hong Kong. Includes warrants for 1,008,000 shares currently
exercisable or exercisable within 60 days. Charmford Limited is a wholly
owned subsidiary of E-Kong Group Limited, a company traded on the Hong
Kong Stock Exchange. The address of E-Kong Group Limited is Suite 2101-3
K. Wah Center 191 Java Point, Hong Kong.
(11) Hollinger Digital Inc's address is Suite 600, 270 Lafayette St.,
New York, NY. Includes warrants for 1,000,000 shares currently exercisable
or exercisable within 60 days. Hollinger Digital Inc. is a wholly owned
subsidiary of Hollinger International Inc., a company traded on the New
York Stock Exchange. Hollinger International Inc. is partially owned, and
controlled by Hollinger Inc., a company traded on the Toronto Stock
Exchange. Hollinger Inc. is controlled by The Hon. Conrad M. Black, its
Chairman and Chief Executive Officer. The address of Mr. Black, Hollinger
International Inc. and Hollinger Inc. is 10 Toronto Street, Toronto,
Canada MSC 2B7 Canada.
- --------------------------------------------------------------------------------
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<PAGE> 16
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information regarding the executive
officers and directors and key employees of SUMmedia.com as of February 25,
2000:
<TABLE>
<CAPTION>
NAME AND POSITION AGE HELD POSITION SINCE
<S> <C> <C>
Grant M. Petersen, Chairman of the Board, and 43 1999
Chief Executive Officer
John E. Veltheer, President and Director 34 1999
Philip Kunsberg, Director __ 2000
Johnson Chan, Director __ 2000
Arvid C. Petersen, Director 48 2000
Derrick Bulawa, Director __ 2000
Frank Palmer, Director 60 2000
David R. Lewis, Chief Financial Officer, 55 1999
Secretary and Treasurer
Andre Dragon, Chief Operating Officer 41 1999
David R. Noble, Chief Information Officer 38 1999
Albert C. Szajman, Vice President, Marketing 42 1999
David E. Jubb, Vice President, ePartnering 56 1999
Ean H. Jackson, Vice President, eBusiness 42 2000
</TABLE>
The SUMmedia.com board is divided into three classes designated as Class I,
Class II and Class III and its directors will be assigned to each class by the
board. At the first annual meeting of stockholders following the effectiveness
of this registration statement, the term of office of the Class I directors will
expire and Class I directors will be elected for a full term of three years;
Class II directors will be elected for a full term of two years; and Class III
directors will be elected for a full term of one year. At the second annual
meeting of stockholders following the effectiveness of this registration
statement, the term of office of the Class III directors will expire and Class
III directors will be elected for a full term of three years. At the third
annual meeting of stockholders following the effectiveness of this registration
statement, the term of office of the Class II directors will expire and Class II
directors will be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors will be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting. The Class I directors are Grant Petersen and John Veltheer;
there are no Class II or Class III directors as of December 31, 1999. Arvid C.
Petersen is the brother of Grant M. Petersen.
- --------------------------------------------------------------------------------
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<PAGE> 17
The following is a brief summary of the business experience of each
director and officer over the last five years:
GRANT M. PETERSEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Petersen has been an officer and director of the Company since
August 1999. Over the past five years, Mr. Petersen has been an investor in
various enterprises and for his own account and has not had operational or
executive responsibilities in any of these endeavors.
JOHN E. VELTHEER
PRESIDENT AND DIRECTOR
Dr. Veltheer has been an officer and a director of the Company since
August 1999. From 1998 to June 1999, Dr. Veltheer was manager of shareholder
relations at Softwex Technologies Inc., a Vancouver, B.C.-based software
company, and remains the principal of Iridium Capital, a Vancouver-based venture
capital company. From September 1996 to 1998, he worked on a consulting basis
with numerous technology companies providing investor relations, business
planning and financial analysis services. From September 1995 to September 1996,
Dr. Veltheer was research associate at the University of British Columbia. From
September 1993 to August 1995, he was a post-doctoral fellow at the University
of California, Berkeley. Dr. Veltheer has a Ph.D. in Chemistry from University
of British Columbia.
PHILIP KUNSBERG
DIRECTOR
Mr. Kunsberg has been a director of SUMmedia.com since January 2000.
Since 1995, Mr. Kunsberg has been the Executive Vice President of Hollinger
Digital Inc.
ARVID C. PETERSEN
DIRECTOR
Mr. Petersen has been a director of SUMmedia.com since February 2000.
Since 1995, Mr. Petersen has been the Managing Director and a co-owner of Study
Group Australia PTY. Limited, Australia's second largest private provider of
education and training. Mr. Petersen graduated from the British Columbia
Institute of Technology.
DERRICK BULAWA
DIRECTOR
Mr. Bulawa has been a director of SUMmedia.com since February 2000.
Since 1998, Mr. Bulawa has been the Chief Operating Officer of Unifi
Communications Inc., a Hong Kong based company. From 1995 to 1999, Mr. Bulawa
has been the President of East Asian operations of Unifi Communications Inc. Mr.
Bulawa received a bachelor of science degree in electronic engineering
technology.
FRANK PALMER
DIRECTOR
Mr. Palmer has been a director of SUMmedia.com since January 2000.
Since 1998, Mr. Palmer has been the Chairman and Chief Executive Officer of DDB
Canada Group (a division of American Canada Inc.). He has been President of
Palmer Jarvis DDB (since DDB's merger with Palmer Jarvis) since 1998 and was
President of Palmer Jarvis (which he co-founded) since its inception in 1969.
All of these companies are in the advertising business. Mr.Palmer graduated from
Vancouver School of Art.
DAVID R. LEWIS
CHIEF FINANCIAL OFFICER
Mr. Lewis has been an officer of the Company since July 1999. He was a
director of the company from August 1999 to December 1999. Prior to joining
SUMmedia.com in July 1999, Mr. Lewis was the Chief Financial Officer at Alya
International Inc., a publicly traded developer of advanced security and
building management systems for large facilities. In 1998, he was the Chief
Financial Officer and a director at Net Nanny Software International Inc., a
publicly-traded a developer of Internet and Web filtering software. From
mid-1994 to early 1998, Mr. Lewis provided management consulting to various
startup companies to help them achieve their operational and financial
objectives through the design and implementation of practical financial and
productivity solutions. Mr. Lewis has a degree in Metallurgical Engineering from
Dalhousie University in Halifax, Nova Scotia and a Chartered Accountant
designation obtained while with Coopers & Lybrand in Toronto, Ontario.
ANDRE DRAGON
CHIEF OPERATING OFFICER
Mr. Dragon has been an officer of the Company since July 1999. From May
1997 to June 1999, Mr. Dragon was the National Director, Sales and Marketing, of
Nextport Media, a subsidiary of Bell Actimedia, a marketing, printing and
publishing group. From October 1994 to November 1996, Mr. Dragon was Director,
International Expansion and Regional General Manager at Interactive Media
- --------------------------------------------------------------------------------
page 17
<PAGE> 18
Group, a Toronto, Ontario developer of interactive communications solutions. Mr.
Dragon holds a Masters of Business Administration degree from Concordia
University in Montreal, Quebec.
DAVID R. NOBLE
CHIEF INFORMATION OFFICER
Mr. Noble joined SUMmedia.com in November 1999 from Oracle Corporation,
where he was a Technical Manager responsible for Internet Development from the
beginning of 1999. From 1994 to 1998, Mr. Noble was with Sierra Systems
Consultants Inc, where he was a principal and Technology Leader for the Public
Sector Practice and responsible for the Oracle Technology Partnership. Mr. Noble
received an honours degree in Computer Science and Information Processing at
Brock University, St. Catharines, Ontario (with a minor in Business Management)
and a Communications Diploma at Napier College in Scotland.
ALBERT C. SZAJMAN
VICE PRESIDENT, MARKETING
Mr. Szajman joined the Company in August 1999 and has been an officer
since that time. From 1997 to 1999, he was Vice President of Palmer Jarvis DDB,
an advertising firm in Vancouver, BC. From 1991 to 1997, Mr. Szajman was with
Bryant, Fulton & Shee, Baird Advertising where he rose from Account Director to
Promotional Marketing Director. Mr. Szajman is a graduate of the Advertising and
Marketing program at British Columbia Institute of Technology.
DAVID E. JUBB
VICE PRESIDENT, EPARTNERING
Mr. Jubb has been an officer of the Company since September 1999. From
1992 to 1996 and from 1998 to late 1999, Mr. Jubb was Vice President, Sales of
Liberty Integration Software, a software company in Vancouver, BC. From 1996 to
1998, he was also the founder and proprietor of a local sales consultancy
operation for more than two years. Mr. Jubb received a Bachelor of Arts degree
from the University of North Carolina. Mr. Jubb spent four years in the U.S.
Marine Corps, before beginning a career in high tech sales management.
EAN H. JACKSON
VICE PRESIDENT, EBUSINESS
Mr. Jackson has been an officer since February 2000. Until 1999, Mr.
Jackson was the Territory Manager for Oracle Corp. Between January and October
1997 Mr. Jackson was the Regional Marketing Coordinator for Softworld '97, an
international deal-making conference. Between September 1996 and December 1997,
Mr. Jackson was the Management Consultant to GeoAccess Communications Inc., a
provider of Internet access. Between January and June 1997, Mr. Jackson was the
Territory Manager for Gandalf Canada Ltd., a manufacturer of remote-access
telecommunications equipment. Between June and December 1996, Mr. Jackson was
the Vice President of Sales and Marketing of Xcert Software Inc., a provider of
Internet security solutions. Between January and June 1996, Mr. Jackson was the
National Sales Manager for Infowave Wireless Messaging Inc./GDT Softworks Inc.,
a wireless messaging company. Mr. Jackson graduated from the University of
Western Ontario and received a Masters of Science degree in engineering and
telecommunications from Southern Methodist University. Mr. Jackson has also
received a certificate in Internet Marketing from the University of British
Columbia.
- --------------------------------------------------------------------------------
page 18
<PAGE> 19
ITEM 6. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
During the year ended December 31, 1998, no executive officer of
SUMmedia.com received a salary. The following table sets forth information
concerning compensation earned in the years ended December 31, 1999 and December
31, 1998 by Patrick Brooks, SUMmedia.com's President and only officer to June
1999, by Julia A. Petersen, SUMmedia.com's President and only officer from June
1999 to August 1999 and by Grant M. Petersen, SUMmedia.com's Chief Executive
Officer from August 1999. The information in the table includes salaries,
bonuses, stock options granted and other miscellaneous compensation.
Annual Compensation
<TABLE>
<CAPTION>
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Options Compensation($)
------------------ ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Patrick Brooks, President 1999 -- -- -- -- --
to June 1999 1998 -- -- -- -- --
Julia A. Petersen, President 1999 -- -- -- -- --
June 1999 to August 1999
Grant M. Petersen 1999 133,458 -- -- 280,000 --
Chairman and Chief Executive
Officer from August 1999
-------- --------------- ---------- --------------
</TABLE>
Mr. Petersen's salary was paid to 505362 B.C. Ltd., a company wholly
owned by Mr. Petersen and his spouse, Julia A. Petersen.
OPTION GRANTS IN LAST FISCAL YEAR
The following table represents the grants of stock options in the
fiscal year ended December 31, 1999 to Grant M. Petersen.
<TABLE>
<CAPTION>
Percent of
Number of Total Options Exercise
Securities Granted to of Base
Underlying Employees in Price Expiration
Name Options (#) Fiscal Year ($/Sh) Date
- ---- ----------- ------------- -------- -----------
<S> <C> <C> <C> <C>
Grant M. Petersen 280,000 11% $3.44 2009
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table represents the exercise of stock options in the
fiscal year ended December 31, 1999 and the fiscal year end value of unexercised
options to Grant M. Petersen.
<TABLE>
<CAPTION>
Number of
Unexercised Value of
Securities Unexercised
Underlying In-The-Money
Options at Options at
Shares FY-end (#) FY-end ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Grant M. Petersen -- -- 67,200/212,800 $436,800/$1,383,200
</TABLE>
- --------------------------------------------------------------------------------
page 19
<PAGE> 20
Director Compensation
Currently, SUMmedia.com's directors do not receive any compensation for
their services as directors. In the near future, SUMmedia.com expects to
establish a compensation plan for non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of SUMmedia.com's executive officers serve as members of the board
of directors or compensation committee of any entity that has one or more
executive officers who serve on SUMmedia.com's board or compensation committee.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1999, Grant M. Petersen, the Chief
Executive Officer and a director of SUMmedia.com, and Dennis Molloy, together
loaned SUMmedia.com $56,436 without interest and without stated terms of
repayment.
During the fiscal year ended December 31, 1999, SUMmedia.com paid
$133,458 for management consulting and related services to 505362 B.C. Ltd.,
wholly owned by Mr. Petersen and his spouse Julia A. Petersen.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
SUMmedia.com is authorized to issue 65,500,000 shares of $0.01 par
value common stock, of which 16,142,000 shares are issued and outstanding as of
December 31, 1999. As of December 31, 1999, SUMmedia.com had approximately 50
holders of record of its common stock. Holders of record of SUMmedia.com's
common stock did not include persons whose shares are held in their securities
brokerage accounts. Holders of shares of common stock are entitled to one vote
per share on all matters submitted to vote of the shareholders of SUMmedia.com.
However, in the election of directors, each holder of shares of common stock is
entitled to have as many votes for each share owned as there are directors to be
elected. There is no right to accumulate votes in the election of directors. A
majority of the votes entitled to be cast on a matter by a voting group
constitutes a vote for action on a matter. Subject to preferences that may apply
to shares of preferred stock outstanding, the holders of shares of common stock
are entitled to receive dividends out of assets legally available at such time
and in such amounts as the board of directors may from time to time determine.
Upon the occurrence of a liquidation, dissolution or winding up of the assets of
SUMmedia.com, the holders of shares of common stock will be entitled to share
ratably in the distribution of all assets remaining available for distribution
after satisfaction of all liability and the payment of any liquidation
preference on any outstanding preferred stock.
- --------------------------------------------------------------------------------
page 20
<PAGE> 21
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION.
SUMmedia.com's common stock trades on the OTC Bulletin Board. The range
of high and low bid quotations for the year ended December 31, 1999 was between
$6.75 and $1.875. These quotations represent prices between dealers and do not
include retail markups, markdowns or commissions and may not necessarily
represent actual transactions. The source of the high and low bid information is
The Nasdaq Stock Market, Inc. Management has been unable to locate any trading
information for the quarterly periods ended between December 31, 1997 and July
9, 1999.
The market in which SUMmedia.com's common stock trades is commonly
referred to as the electronic bulletin board. In this market, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to the
market value of SUMmedia.com's common stock. In addition, SUMmedia.com is
subject to a rule promulgated by the Securities and Exchange Commission that
provides that, if SUMmedia.com fails to meet certain criteria set forth in such
rule, various sales practice requirements are imposed on broker/dealers who sell
SUMmedia.com's common stock to persons other than established customers and
accredited investors. For these types of transactions, the broker/dealer has to
make a special investor suitability determination for the purchaser and to have
received the purchaser's written consent to the transactions prior to sale.
Consequently, the rule may have an adverse effect on the ability of
broker/dealers to sell SUMmedia.com's common stock, which may, in turn, have an
adverse effect on the ability of purchasers to sell SUMmedia.com's common stock
in the market.
HOLDERS
As of December 31, 1999, SUMmedia.com had approximately 50 holders of
record of its common stock.
DIVIDENDS
SUMmedia.com has not declared cash dividends on its common stock since
its inception. SUMmedia.com does not anticipate paying any dividends on its
common stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
On January 31, 2000, Jihong Zhang, a former officer and director of
SUMmedia.com, filed a suit of summons against SUMmedia.com, SUM Media Corp. and
Grant Peterson in the Supreme Court of British Columbia. In her suit, Ms. Zhang
alleges that the defendants failed to pay her compensation amounting to 150,000
restricted and 100,000 unrestricted shares of SUMmedia.com's common stock and
200,000 options to purchase shares of SUMmedia.com's common stock. In addition,
Ms. Jihong claims wrongful breach of her employment contracts with the
defendants and related tortious acts. Ms. Jihong is seeking costs and such
relief as is deemed necessary by the Court.
- --------------------------------------------------------------------------------
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<PAGE> 22
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
A decision to change SUMmedia.com's principal independent accountant
was recommended by the board of directors and was approved by the shareholders
on August 20, 1999. This change is the result of SUMmedia.com's desire to engage
a global accounting firm. In January 2000, SUMmedia.com appointed
PricewaterhouseCoopers LLP as its independent accountants.
SUMmedia.com's former accountant was dismissed. The principal
accountants' reports for both of the last two fiscal years did not contain an
adverse opinion disclaimer of opinion, or modification as to uncertainty, audit
scope, or accounting principles. The decision to change accountants was approved
by the Board of Directors. There were no disagreements with SUMmedia.com's
former accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
All sales of unregistered securities issued by SUMmedia.com were
denominated in U.S. dollars.
On August 6, 1999, SUMmedia.com issued 3,200,000 shares of its common
stock for 9,000,001 shares (100%) of SUM Media Corp. The per share price was
determined through arms-length negotiations between the parties. Issuance of the
shares was made in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended ("1933 Act"). The
purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the shares for the
purchaser's own account and not for the purpose of distribution. The shares
contained a restrictive legend advising that the securities represented by the
shares may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
In August 1999, SUMmedia.com issued 500,000 units each to Tigerlily
Financial Inc. and Cambridge Asset Holdings S.A. for gross proceeds of
$1,000,000. Each unit consisted of one share of common stock and one common
stock purchase warrant. Each warrant is exercisable for 24 months for one share
of common stock at an exercise price of $3.00 per share. The per share price was
determined through arms-length negotiations and was lowered due to the uncertain
future of SUMmedia.com. Issuance of the units was made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. The
purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the units for the
purchaser's own account and not for the purpose of distribution. The units
contained a restrictive legend advising that the securities represented by the
units may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
In September 1999, SUMmedia.com issued 500,000 units to Startech
Corporation for gross cash proceeds of $1,500,000. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
one share of common stock at an exercise price of $4.50 per share. Issuance of
the units was made in reliance upon the exemption from registration provided by
Section 4(2) of the
- --------------------------------------------------------------------------------
page 22
<PAGE> 23
1933 Act. The purchaser was an accredited investor and had access to full
information concerning SUMmedia.com and represented that it purchased the units
for the purchaser's own account and not for the purpose of distribution. The
units contained a restrictive legend advising that the securities represented by
the units may not be offered for sale, sold or otherwise transferred without
having first being registered under the 1933 Act or pursuant to an exemption
from registration under the 1933 Act. No underwriters were involved in the
transaction.
In September 1999, SUMmedia.com issued 500,000 units to Valdar
Enterprises Ltd. for gross cash proceeds of $1,500,000. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
one share of common stock at an exercise price of $4.50 per share. Issuance of
the units was made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. The purchaser was an accredited investor and had
access to full information concerning SUMmedia.com and represented that it
purchased the units for the purchaser's own account and not for the purpose of
distribution. The units contained a restrictive legend advising that the
securities represented by the units may not be offered for sale, sold or
otherwise transferred without having first being registered under the 1933 Act
or pursuant to an exemption from registration under the 1933 Act. No
underwriters were involved in the transaction.
In December 1999, SUMmedia.com issued 31,000 units to R.F. Hauser Shows
Ltd. for gross proceeds of $100,750. The per share price was determined by
reducing the market price, at the time of the commencement of negotiations
between the parties, by approximately 15% to 20% due to the illiquidity of the
shares. In addition, SUMmedia.com sold warrants for nominal consideration to
give the purchasers added incentive to invest and to allow the prospect of
future financing. Each unit consisted of one share of common stock and one
common stock purchase warrant. Each warrant is exercisable for 12 months for one
share of common stock at an exercise price of $4.00 per share. Issuance of the
units was made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. The purchaser was an accredited investor and had
access to full information concerning SUMmedia.com and represented that it
purchased the units for the purchaser's own account and not for the purpose of
distribution. The units contained a restrictive legend advising that the
securities represented by the units may not be offered for sale, sold or
otherwise transferred without having first being registered under the 1933 Act
or pursuant to an exemption from registration under the 1933 Act. No
underwriters were involved in the transaction.
- --------------------------------------------------------------------------------
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<PAGE> 24
In December 1999, SUMmedia.com issued 716,668 units to H. High Tech
Investments Ltd. for gross cash proceeds of $2,150,004. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
one share of common stock at an exercise price of $5.00 per share. Issuance of
the units was made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. The purchaser was an accredited investor and had
access to full information concerning SUMmedia.com and represented that it
purchased the units for the purchaser's own account and not for the purpose of
distribution. The units contained a restrictive legend advising that the
securities represented by the units may not be offered for sale, sold or
otherwise transferred without having first being registered under the 1933 Act
or pursuant to an exemption from registration under the 1933 Act. No
underwriters were involved in the transaction.
In December 1999, SUMmedia.com issued 116,666 units to Yi-Ming Wu for
gross cash proceeds of $349,998. The per share price was determined by reducing
the market price, at the time of the commencement of negotiations between the
parties, by approximately 15% to 20% due to the illiquidity of the shares. In
addition, SUMmedia.com sold warrants for nominal consideration to give the
purchasers added incentive to invest and to allow the prospect of future
financing. Each unit consisted of one share of common stock and common stock
purchase warrant. Each warrant is exercisable for 12 months for one share of
common stock at an exercise price of $5.00 per share. Issuance of the units was
made in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. The purchaser was an accredited investor and had access to full
information concerning SUMmedia.com and represented that it purchased the units
for the purchaser's own account and not for the purpose of distribution. The
units contained a restrictive legend advising that the securities represented by
the units may not be offered for sale, sold or otherwise transferred without
having first being registered under the 1933 Act or pursuant to an exemption
from registration under the 1933 Act. No underwriters were involved in the
transaction.
In December 1999, SUMmedia.com issued 166,666 units to Shih-I Chow for
gross cash proceeds of $499,998. The per share price was determined by reducing
the market price, at the time of the commencement of negotiations between the
parties, by approximately 15% to 20% due to the illiquidity of the shares. In
addition, SUMmedia.com sold warrants for nominal consideration to give the
purchasers added incentive to invest and to allow the prospect of future
financing. Each unit consisted of one share of common stock and common stock
purchase warrant. Each warrant is exercisable for 12 months for one share of
common stock at an exercise price of $5.00 per share. Issuance of the units was
made in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act. The purchaser was an accredited investor and had access to full
information concerning SUMmedia.com and represented that it purchased the units
for the purchaser's own account and not for the purpose of distribution. The
units contained a restrictive legend advising that the securities represented by
the units may not be offered for sale, sold or otherwise transferred without
having first being registered under the 1933 Act or pursuant to an exemption
from registration under the 1933 Act. No underwriters were involved in the
transaction.
In December 1999, SUMmedia.com issued 100,000 units to Avtar T. Bains
for gross cash proceeds of $325,000. The per share price was determined by
reducing the market price, at the time of the commencement of negotiations
between the parties, by approximately 15% to 20% due to the illiquidity of the
shares. In addition, SUMmedia.com sold warrants for nominal consideration to
give the purchasers added incentive to invest and to allow the prospect of
future financing. Each unit consisted of one share of common stock and common
stock purchase warrant. Each warrant is exercisable for 12 months for one share
of common stock at an exercise price of $4.25 per share. Issuance of the units
was made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. The purchaser was an accredited investor and had access to
full information concerning SUMmedia.com and represented that it purchased the
units for the purchaser's own account and not for the purpose of distribution.
The units contained a restrictive legend advising that the securities
represented by the units may not be offered for sale, sold or otherwise
transferred without having first being registered under the 1933 Act or pursuant
to an exemption from registration under the 1933 Act. No underwriters were
involved in the transaction.
In December 1999, SUMmedia.com issued 21,000 units for gross cash
proceeds of $68,250 to Rypeter Fishing Ltd. The per share price was determined
by reducing the market price, at the time of the commencement of negotiations
between the parties, by approximately 15% to 20% due to the illiquidity of the
shares. In addition, SUMmedia.com sold warrants for nominal consideration to
give the purchasers added incentive to invest and to allow the prospect of
future financing. Each unit consisted of one share of common stock and common
stock purchase warrant. Each warrant is exercisable for 12 months for one share
of common stock at an exercise price of $4.00 per share. Issuance of the units
was made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. The purchaser was an accredited investor and had access to
full information concerning SUMmedia.com and represented that it purchased the
units for the purchaser's own account and not for the purpose of distribution.
The units contained a restrictive legend advising that the securities
represented by the units may not be offered for sale, sold or otherwise
transferred without having first being registered under the 1933 Act or pursuant
to an exemption from registration under the 1933 Act. No underwriters were
involved in the transaction.
- --------------------------------------------------------------------------------
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<PAGE> 25
In January 2000, SUMmedia.com issued 308,000 units to Enrich Investment
Holdings Ltd. for gross cash proceeds of $1,001,000. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
$4.25 for one share of common stock. Issuance of the units was made in reliance
upon the exemption from registration provided by Section 4(2) of the 1933 Act.
The purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the units for the
purchaser's own account and not for the purpose of distribution. The units
contained a restrictive legend advising that the securities represented by the
units may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
In January 2000, SUMmedia.com issued 1,000,000 units to Hollinger
Digital Inc. for gross cash proceeds of $4,000,000. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
$6.00 for one share of common stock. Issuance of the units was made in reliance
upon the exemption from registration provided by Section 4(2) of the 1933 Act.
The purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the units for the
purchaser's own account and not for the purpose of distribution. The units
contained a restrictive legend advising that the securities represented by the
units may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
In January 2000, SUMmedia.com issued 159,900 shares of its common stock
to Core Pacific - Yamaichi International (H.K.) Limited pursuant to an option
exercise at $3.00 per share for gross cash proceeds of $479,700. The per share
price was determined by reducing the market price, at the time of the
commencement of negotiations between the parties, by approximately 15% to 20%
due to the illiquidity of the shares. In addition, SUMmedia.com sold warrants
for nominal consideration to give the purchasers added incentive to invest and
to allow the prospect of future financing. Issuance of the shares was made in
reliance upon the exemption from registration provided by Section 4(2) of the
1933 Act. The purchaser was an accredited investor and had access to full
information concerning SUMmedia.com and represented that it purchased the shares
for the purchaser's own account and not for the purpose of distribution. The
shares contained a restrictive legend advising that they may not be offered for
sale, sold or otherwise transferred without having first being registered under
the 1933 Act or pursuant to an exemption from registration under the 1933 Act.
No underwriters were involved in the transaction.
In February 2000, SUMmedia.com issued 700,000 units to e-Kong Group
Ltd. for gross cash proceeds of $3,675,000. Each unit consisted of one share of
common stock and common stock purchase warrant. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each warrant is exercisable for 12 months for
$7.00 for one share of common stock. Issuance of the units was made in reliance
upon the exemption from registration provided by Section 4(2) of the 1933 Act.
The purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the units for the
purchaser's own account and not for the purpose of distribution. The units
contained a restrictive legend advising that the securities represented by the
units may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
In February 2000, SUMmedia.com issued 20,000 units to Eastern Dragon
Enterprises Ltd. for gross cash proceeds of $105,000. The per share price was
determined by reducing the market price, at the time of the commencement of
negotiations between the parties, by approximately 15% to 20% due to the
illiquidity of the shares. In addition, SUMmedia.com sold warrants for nominal
consideration to give the purchasers added incentive to invest and to allow the
prospect of future financing. Each unit consisted of one share of common stock
and common stock purchase warrant. Each warrant is exercisable for 12 months for
$7.00 for one share of common stock. Issuance of the units was made in reliance
upon the exemption from registration provided by Section 4(2) of the 1933 Act.
The purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that it purchased the units for the
purchaser's own account and not for the purpose of distribution. The units
contained a restrictive legend advising that the securities represented by the
units may not be offered for sale, sold or otherwise transferred without having
first being registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. No underwriters were involved in the
transaction.
- --------------------------------------------------------------------------------
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<PAGE> 26
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In February 2000, SUMmedia.com obtained $1.0 million of directors' and
officers' liability insurance. This policy insures the past, present and future
directors and officers of SUMmedia.com, with certain exceptions, from claims
arising out of any error, omission, misstatement, misleading statement, neglect
or breach of duty or act by any of the officers or directors of SUMmedia.com
while acting in their respective capacities as such. Claims include claims
arising under federal and state securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
SUMmedia.com pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity with the
corporation, that the directors conduct was in the corporation's best interest
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
the director had no reasonable cause to believe the director's conduct was
unlawful.
SUMmedia.com's Amended and Restated Articles of Incorporation provide
that a corporation shall, to the fullest extent permitted by the laws of the
state of Colorado, indemnify any person who was or is a party or threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, and whether formal or informal by reason of the fact that he or
she is or was a director, officer, fiduciary agent of the corporation or is or
was serving at the request of the corporation as a director, officer, fiduciary
or agent of any other foreign or domestic corporation or of any partnership,
joint venture, trust, other enterprise or employee benefit plan. In addition,
the Amended and Restated Articles of Incorporation state that the corporation
shall have the right, in its sole discretion, to indemnify any other person to
the fullest extent allowed by the laws of the state of Colorado, except as may
be limited by law from time to time in effect.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUMMEDIA.COM INC.
Date: March 2, 2000 /s/ David R. Lewis
----------------------------
David R. Lewis,
Chief Financial Officer
PART F/S
The financial statements located in the Company's Annual Reports on
Form 10-KSB for the years ended December 31, 1998 and 1997 are incorporated into
this registration statement by reference.
- --------------------------------------------------------------------------------
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<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMmedia.com Inc. (formerly Reliance Resources Inc.) Pro forma
Consolidated Statement of Operations (Unaudited) December 31, 1999 and 1998 PF-1
SUMmedia.com Inc. (formerly Reliance Resources Inc.) Consolidated financial
statements December 31, 1999 and 1998 F-1
SUM Media Corp. (formerly E-Com Media Corp.) financial statements August 6, 1999 F-23
</TABLE>
- --------------------------------------------------------------------------------
page 27
<PAGE> 28
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Pro forma Consolidated Statement of Operations
(Unaudited)
DECEMBER 31, 1999
(expressed in U.S. dollars)
PF-1
<PAGE> 29
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Pro Forma Consolidated Statement of Operations
(UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
SUMmedia.com INC. SUM MEDIA CORP.
JANUARY 1, MARCH 23, PRO FORMA
1999 TO 1999 TO PRO FORMA CONSOLIDATED
DECEMBER 31, AUGUST 6, ADJUSTMENT STATEMENT OF
1999 1999 SUB TOTAL (NOTE 1) OPERATIONS
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
SALES 132,051 16,515 148,566 -- 148,566
COST OF SALES 117,940 8,574 126,514 -- 126,514
---------- ---------- ----------- ---------- -----------
GROSS PROFIT 14,111 7,941 22,052 -- 22,052
---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES
Stock based compensation 2,500,000 2,581,031 5,081,031 -- 5,081,031
General and administrative 2,405,678 258,980 2,664,658 -- 2,664,658
Marketing 1,427,549 204,509 1,632,058 -- 1,632,058
Research and development 97,014 -- 97,014 -- 97,014
Amortization of goodwill 1,801,223 -- 1,801,223 2,671,202 4,472,425
Amortization of property and
equipment 97,418 17,754 115,172 -- 115,172
---------- ---------- ----------- ---------- -----------
8,328,882 3,062,274 11,391,156 2,671,202 14,062,358
---------- ---------- ----------- ---------- -----------
LOSS FOR THE YEAR (8,314,771) (3,054,333) (11,369,104) (2,671,202) (14,040,306)
========== ========== =========== ========== ===========
Basic and fully
diluted loss
per share (0.24) -- -- -- (0.40)
========== ========== =========== ========== ===========
</TABLE>
PF-2
<PAGE> 30
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Pro Forma Consolidated Financial Statements
(UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 PRO FORMA TRANSACTION
On August 6, 1999, SUMmedia.com Inc. (formerly Reliance Resources Inc.)
("the company") entered into a share exchange agreement with SUM Media
Corp. (formerly E-Com Media Corp.), a British Columbia, Canada company.
Pursuant to the terms of the agreement, the company issued 3,200,000 common
shares for all of the issued and outstanding shares of SUM Media Corp. This
transaction has been accounted for using the purchase method whereby the
fair value of the common shares issued by the company have been allocated
to the net identifiable assets of SUM Media Corp. based on their fair
values. The purchase price allocation also resulted in goodwill of
$13,417,275 including an allocation of $1,000,000 relating to acquisition
costs. Prior to this transaction, the company was inactive. The terms of
the acquisition as well as the net assets acquired are disclosed in note 3
of the Company's consolidated financial statements.
The pro forma consolidated statement of operations gives effect to the
share exchange as if it had occurred on January 1, 1999. Accordingly, the
pro forma consolidated statement of operations reflects a pro forma
adjustment recording the amortization of goodwill for the period from
January 1, 1999 to August 6, 1999. This adjustment results in the
amortization of $4,472,425 of goodwill for the year ended December 31,
1999. Amortization is provided on a straight-line basis over three years.
2 BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of operations has been
prepared by management in accordance with generally accepted accounting
principles in the United States and the pro forma assumption and adjustment
described in note 1.
The pro forma consolidated statement of operations for the year ended
December 31, 1999 is based on the historical consolidated statement of
operations of the company for year ended December 31, 1999, and the
historical statement of operations of the SUM Media Corp. for the period
from March 23, 1999 to August 6, 1999.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the results that actually would have resulted if
the transactions reflected herein had been completed on the dates indicated
or the results which may be obtained in the future. The unaudited pro forma
consolidated statement of operations should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements of the company and
financial statements of SUM Media Corp., including the respective notes
thereto, included elsewhere herein.
3 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of the pro
forma consolidated statement of operations include those disclosed in the
audited financial statements of the company.
4 BASIC AND FULLY DILUTED LOSS PER SHARE
The basic and fully diluted pro forma loss per share is computed by
dividing the loss available to common stockholders by the weighted average
shares outstanding.
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted -
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - December 31
Opening Balance 64,000,000 1.00 64,000,000
January 1 - June 4
Cancellation of shares (48,000,000) 0.58 (27,616,438)
January 1 - June 16
Cancellation of shares (6,210,000) 0.54 (3,368,712)
August 6 - December 31
Shares issued for purchase
of SUM Media Corp. 3,200,000 0.36 1,166,027
August 26 - December 31
Various private placements
completed in this period 3,152,000 0.18 581,055
-----------
Weighted-average shares 34,761,932
===========
</TABLE>
(1)
PF-3
<PAGE> 31
SUMmedia.com Inc.
(formerly Reliance Resources Inc.)
(a development stage company)
Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
(expressed in U.S. dollars)
<PAGE> 32
INDEPENDENT REPORT OF ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SUMmedia.com Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and shareholders' equity
(deficit), present fairly, in all material respects, the financial position of
SUMmedia.com INC. (formerly Reliance Resources Inc.) at December 31, 1999 and
the results of its operations and its cash flows for the year ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States,
which required that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The financial statements of SUMmedia.com INC. (formerly Reliance Resources Inc.)
for the year ended December 31, 1998 were audited by other independent
accountants whose report dated March 31, 1999 expressed an unqualified opinion
on those statements.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Vancouver, Canada
January 21, 2000
(except as to note 11 which is as at February 28, 2000)
F-1
<PAGE> 33
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Consolidated Balance Sheets
AS AT DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 2,108,167 --
Accounts receivable (note 4) 65,830 --
Sales tax recoverable (note 4) 173,519 --
Prepaid expenses (note 4) 231,460 --
---------- -------
2,578,976 --
OTHER ASSETS (note 4) 74,359 --
PROPERTY AND EQUIPMENT (note 4) 1,840,821 --
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $1,801,223 (note 3) 11,616,052 --
---------- -------
16,110,208 --
========== =======
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 4) 1,407,212 4,500
Due to related parties (note 5) 56,436 --
Deferred revenue 104,012 --
Current portion of obligation under capital lease (note 6) 13,318 --
---------- -------
1,580,978 4,500
OBLIGATION UNDER CAPITAL LEASE (note 6) 58,939 --
---------- -------
1,639,917 --
SHAREHOLDERS' EQUITY (DEFICIT)
CAPITAL STOCK
Authorized
1,000,000 (1998 - 10,000,000) preferred shares, $0.01 par value (note 8)
65,500,000 (1998 - 50,000,000) common shares, $0.01 par value
(1998 - $0.001) (note 8)
Issued
16,142,000 (1998 - 64,000,000) common shares 161,420 2,000
ADDITIONAL PAID-IN CAPITAL 20,275,059 53,230
WARRANTS ISSUED IN CONNECTION WITH PRIVATE PLACEMENTS (note 8) 2,552,751 --
SHARE SUBSCRIPTIONS (note 8) (125,000) --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (8,374,501) (59,730)
ACCUMULATED OTHER COMPREHENSIVE INCOME (19,438) --
---------- -------
14,470,291 (4,500)
---------- -------
16,110,208 --
========== =======
NATURE OF OPERATIONS AND BASIS OF PRESENTATION (note 1)
COMMITMENTS (note 6)
SUBSEQUENT EVENTS (note 11)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 34
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
YEAR ENDED DECEMBER 31, INCORPORATION)
------------------------------- TO
DECEMBER 31,
1999 1998 1999
$ $ $
<S> <C> <C> <C>
SALES 132,051 -- 132,051
COST OF SALES 117,940 -- 117,940
---------- ------ ----------
GROSS PROFIT 14,111 -- 14,111
---------- ------ ----------
OPERATING EXPENSES
Stock based compensation 2,500,000 - 2,500,000
General and administrative 2,405,678 4,500 2,465,408
Marketing 1,427,549 - 1,427,549
Amortization of goodwill 1,801,223 - 1,801,223
Amortization of property and equipment 97,418 - 97,418
Research and development 97,014 - 97,014
---------- ------ ----------
8,328,882 4,500 8,388,612
---------- ------ ----------
LOSS FOR THE YEAR (8,314,771) (4,500) (8,374,501)
========== ====== ==========
BASIC AND FULLY DILUTED LOSS PER SHARE (0.24) (0.01)
========== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 35
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
WARRANTS
ISSUED IN
CONNECTION ACCUMULATED
WITH PRIVATE OTHER TOTAL
COMMON STOCK ADDITIONAL PLACEMENTS COMPRE- SHAREHOLDERS'
------------------- PAID IN ------------------------- HENSIVE EQUITY
SHARES AMOUNT CAPITAL WARRANTS AMOUNT DEFICIT INCOME (DEFICIT)
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 7, 1990 (DATE OF
INCORPORATION)
Issuance of 270,000 units
(consisting of one common
share and one warrant)
in December 1990 8,640,000 270 4,730 -- -- -- 5,000
LOSS FOR THE YEAR ENDED
DECEMBER 31, 1990 -- -- -- -- (12,368) -- (12,368)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1990 8,640,000 270 4,730 -- (12,368) -- (7,368)
Loss for the year ended
December 31, 1991 -- -- -- -- (5,877) -- (5,877)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1991 8,640,000 270 4,730 -- (18,245) -- (13,245)
Loss for the year ended
December 31, 1992 -- -- -- -- (9,391) -- (9,391)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1992 8,640,000 270 4,730 -- (27,636) -- (22,636)
Paid in capital arising on
cancellation of note to
shareholder -- -- 30,000 -- -- -- 30,000
Loss for the year ended
December 31, 1993 -- -- -- -- (5,846) -- (5,846)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1993 8,640,000 270 34,730 -- (33,482) -- 1,518
Loss for the year ended
December 31, 1994 -- -- -- -- (6,600) -- (6,600)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1994 8,640,000 270 34,730 -- (40,082) -- (5,082)
Loss for the year ended
December 31, 1995 -- -- -- -- (4,418) -- (4,418)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1995 8,640,000 270 34,730 -- (44,500) -- (9,500)
Loss for the year ended
December 31, 1996 -- -- -- -- (3,500) -- (3,500)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1996 8,640,000 270 34,730 -- (48,000) -- (13,000)
Stock issued for officer
and director fees in
December 1997 7,360,000 230 -- -- -- -- 230
Loss for the year ended
December 31, 1997 -- -- -- -- (7,230) -- (7,230)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1997 16,000,000 500 34,730 -- (55,230) -- (20,000)
Shares issued to officer
for management services
in June 1998 48,000,000 1,500 18,500 -- -- -- 20,000
Loss for the year ended
December 31, 1998 -- -- -- -- (4,500) -- (4,500)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1998 64,000,000 2,000 53,230 -- (59,730) -- (4,500)
Cancellation of shares
in June 1999 (note 8) (48,000,000) (1,500) 1,500 -- -- -- -- --
Cancellation of shares
issued in 1997 to
sole officer in June
1999 (note 8) (6,210,000) (194) 194 -- -- -- -- --
Cumulative adjustment to
change in par value and
retroactive application
of 32:1 forward split -- 97,594 (97,594) -- -- -- -- --
Acquisition of SUM Media
Corp. in August 1999,
including allocation of
$1,000,000 acquisition
costs (note 8(i)) 3,200,000 32,000 12,968,000 -- -- -- -- 13,000,000
Private placement #1 of
1,000,000 units (consisting
of one common share and one
warrant) in August 1999 for
$1 per unit (note 8(i)) 1,000,000 10,000 645,480 1,000,000 344,520 -- -- 1,000,000
Stock based compensation
(note 8(i)) -- -- 1,000,000 -- -- -- -- 1,000,000
Stock based compensation
(note 8(i)) -- -- 750,000 -- 750,000 -- -- 1,500,000
Private placement #2 of
500,000 units (consisting
of one common share and one
warrant) in September 1999
for $3 per unit (note 8) 500,000 5,000 1,221,344 500,000 273,656 -- -- 1,500,000
Private placement #3 of
500,000 units (consisting
of one common share and one
warrant) in September 1999
for $3 per unit (note 8) 500,000 5,000 1,221,344 500,000 273,656 -- -- 1,375,000
Private placement #4 of
1,000,000 units (consisting
of one common share and one
warrant) in December 1999
for $3 per unit. Also
issued were 159,900
options. (note 8) 1,000,000 10,000 2,156,146 1,159,900 773,854 -- -- 2,940,000
Share subscription -- -- (125,000) -- -- -- -- --
Private placement #5 of
100,000 units (consisting
of one common share and one
warrant) in December 1999
for $3.25 per unit (note 8) 100,000 1,000 228,522 100,000 95,478 -- -- 325,000
Private placement #6 of
31,000 units (consisting
of one common share and one
warrant) in December 1999
for $3.35 per unit. (note 8) 31,000 310 79,639 31,000 20,801 -- -- 100,750
Private placement #7 of
21,000 units (consisting
of one common share and one
warrant) in December 1999
for $3.25 per unit. (note 8) 21,000 210 47,254 21,000 20,786 -- -- 68,250
Foreign currency
translation adjustment -- -- -- -- -- -- (19,438) (19,438)
Loss for the year -- -- -- -- -- (8,314,771) -- (8,314,771)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
Total comprehensive income -- -- -- -- -- -- (8,334,209)
----------- ------- ---------- ----------- ------------ ---------- ----------- -------------
BALANCE - DECEMBER 31, 1999 16,142,000 161,420 20,150,059 3,311,900 2,552,751 (8,374,501) (19,438) 14,470,291
=========== ======= ========== =========== ============ ========== =========== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 36
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
INCORPORATION)
TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------- ----------------
1999 1998 1999
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year (8,314,771) (4,500) (8,374,501)
Adjustments to reconcile loss for the year to net cash used in
operating activities
Stock based compensation 2,500,000 -- 2,500,000
Amortization of property and equipment and goodwill 1,898,641 -- 1,898,641
Changes in non-cash working capital items
Accounts receivable (61,672) -- (61,672)
Sales tax recoverable (144,588) -- (144,588)
Prepaid expenses (223,228) -- (223,228)
Accounts payable and accrued liabilities 1,288,708 4,500 1,293,208
Deferred revenue (25,100) -- (25,100)
---------- ------ ----------
(3,082,010) -- (3,137,240)
---------- ------ ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common shares 7,309,000 -- 7,364,230
Due to related parties (741,100) -- (741,100)
Repayment of capital lease obligations (5,066) -- (5,066)
---------- ------ ----------
6,562,834 -- 6,618,064
---------- ------ ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Other Assets 4,714 -- 4,714
Purchase of property and equipment (1,558,017) -- (1,558,017)
Cash acquired on acquisition of SUM Media Corp. 212,591 -- 212,591
---------- ------ ----------
(1,340,712) -- (1,340,712)
---------- ------ ----------
FOREIGN EXCHANGE EFFECT ON CASH (31,945) -- (31,945)
---------- ------ ----------
INCREASE IN CASH AND CASH EQUIVALENTS BEING CASH AND CASH
EQUIVALENTS - END OF YEAR 2,108,167 -- 2,108,167
========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 37
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
THE COMPANY
SUMmedia.com Inc. (the "company" or "SUMmedia.com") is an Internet media
and marketing company that provides online coupons for small and medium
sized businesses through its portal, savingumoney.com. The company's
business consists of providing Internet marketing initiatives including
coupons, advertising banners, discount shopping and website design and
hosting, as well as selling exclusive regional rights to market the
company's products. For the year ended December 31, 1999, the majority of
the company's customers were located in Canada.
The company was incorporated on December 7, 1990, under the laws of the
State of Delaware as Pursuit Ventures Corporation ("Pursuit"). Under a Plan
and Agreement of Merger dated August 21, 1998, Pursuit merged with
Remington Assets Limited, a Colorado corporation that was incorporated on
March 20, 1997. Under the terms of the Agreement of Merger, Remington
became the surviving company. Effective September 8, 1998, Pursuit changed
its name to Reliance Resources Inc. ("Reliance"). In June 1999, Reliance
completed a 1:32 forward stock split. These consolidated financial
statements have been presented on a post stock split basis (note 8).
On August 6, 1999, Reliance entered into a share exchange agreement with
SUM Media Corp. (formerly E-Com Media Corp.), a British Columbia, Canada
company. Pursuant to the terms of the agreement, Reliance issued 3,200,000
common shares to acquire 100% of the issued and outstanding shares of SUM
Media Corp. (note 3). On August 25, 1999, Reliance changed its name to
SUMmedia.com Inc.
GOING CONCERN
The company has not yet generated significant revenues and has no assurance
of future profitability. Even if marketing efforts are successful,
substantial time may pass before profitability will be achieved. During
this time, the company will require additional financing. The company has
losses from operations that raise substantial doubt about its ability to
continue as a going concern.
These audited consolidated financial statements have been prepared on the
basis of accounting principles applicable to a going concern which assumes
the realization of assets and discharge of liabilities in the normal course
of business. The company is in discussions with financing institutions with
respect to securing equity financing. However, there are no assurances that
the company will be successful in closing such financing transactions.
The company's ability to continue as a going concern is dependent upon
obtaining additional financing and upon its ability to attain profitable
operations. These consolidated financial statements do not give effect to
any adjustments that would be necessary should the company not be able to
continue as a going concern.
(1)
F-7
<PAGE> 38
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Development stage
The company's activities, subsequent to its acquisition of SUM Media Corp.,
have primarily consisted of establishing facilities, recruiting personnel,
conducting research and development, developing business and financial
plans and raising capital. Accordingly, the company is considered to be in
the development stage. The accompanying financial statements should not be
regarded as typical for a normal operating period. Prior to its acquisition
of SUM Media Corp., the company was inactive incurring only general and
administrative expenses.
2 SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the company
and its wholly-owned Canadian subsidiary, SUM Media Corp. All significant
intercompany balances and transactions have been eliminated on
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires the company's
management to make estimates and assumptions which affect the amounts
reported in these financial statements and the notes thereto. Actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The company's principal operations are carried out by its Canadian
subsidiary. The functional currency of the Canadian subsidiary is the
Canadian dollar. Assets and liabilities denominated in a currency other
than the U.S. dollar are translated into U.S. dollars using period end
exchange rates and revenues and expenses denominated in other than the U.S.
dollar are translated using average exchange rates for the period.
Translation gains and losses are deferred and accumulated as a separate
component of comprehensive income in shareholders' equity (deficit). Net
gains and losses resulting from foreign exchange transactions are included
in the consolidated statement of operations.
(2)
F-8
<PAGE> 39
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with maturities at the date of
purchase of three months or less. Interest earned is recognized immediately
in the consolidated statement of operations.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the company to a significant
concentration of credit risk consist primarily of cash and cash
equivalents, accounts receivable and sales tax recoverable which are not
collateralized. The company limits its exposure to credit loss by placing
its cash and cash equivalents with high credit quality financial
institutions. Concentrations of credit risk with respect to accounts
receivable are considered to be limited due to the low average billing and
large number of customers comprising the company's customer base. The
company performs ongoing credit evaluations of its customers financial
condition to determine the need for an allowance for doubtful accounts. The
company has not experienced significant credit losses to date.
Concentrations of credit risk with respect to sales tax recoverable are
considered to be limited as these amounts are owed to the company by a
branch of Canadian Federal Government.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments, including cash and cash equivalents,
accounts receivable, sales tax recoverable, accounts payable and accrued
liabilities, due to related parties and obligations under capital lease are
carried at cost, which approximates their fair value. The fair value of
outstanding warrants to purchase common shares have been estimated using
the Black Scholes valuation model using assumptions similar to those
disclosed in note 8 for stock based compensation and the relevant term to
expiry.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated amortization.
Property and equipment are amortized on a straight line basis over their
estimated useful lives as follows:
Software 1 to 5 years
Computer equipment 2 years
Leased automobile 3 years
Office equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements the remaining lease term
Software includes operating systems development programs, financial
systems, the company's website system and an enterprise business system.
All software, other than the enterprise business system, is being amortized
over one year. The enterprise business system is being amortized over five
years. The company capitalizes certain expenditures on software used in its
operations in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use".
(3)
F-9
<PAGE> 40
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
IMPAIRMENT OF LONG-LIVED ASSETS
The company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS"). SFAS No. 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds
the future undiscounted cash flows attributable to such assets.
GOODWILL
Goodwill, which is the excess of the purchase price of the company's
interest in its subsidiary over the fair value of the underlying assets
acquired and liabilities assumed on the acquisition, is amortized on a
straight-line basis over three years. Periodically, management reviews the
carrying value of goodwill by considering the expected undiscounted future
cash flows of the related business. Permanent impairments in the value of
the unamortized portion of goodwill are written down and charged to the
consolidated statement of operations in the periods in which the impairment
is determined.
REVENUE RECOGNITION
Revenues from the placement of customers' online coupons and advertising
banners on the company's website for fixed or determinable fees are
recognized rateably over the period of the contract unless collection is
not reasonably assured in which case revenues are recognized when cash
payments are received. Revenues related to the design and production of a
customer's website are recognized at the time the customer has accepted the
completed website and collection is reasonably assured. Revenues related to
hosting customers' websites are recognized rateably over the period of the
contract unless collection is not reasonably assured in which case revenues
are recognized when cash payments are received. Revenues from regional
exclusivity fees for the exclusive right to market the company's products
in predefined regions are recognized when the initial set-up and training
services are completed as this represents when all significant obligations
in accordance with the terms of the arrangement have been met and when the
collectibility of the related fees is reasonably assured. To the extent
that uncertainties exist in connection with the company's obligations
related to regional exclusivity fees, the company only records revenues to
the extent of costs incurred. In such circumstances, amounts received in
excess of revenue recognized are included in deferred revenue.
ADVERTISING EXPENSE
The company recognizes advertising costs in accordance with Statement of
Position ("SOP") 93-7 "Reporting on Advertising Costs." As such the company
expenses the cost of producing advertisements at the time production
occurs, and expenses the cost of communicating advertising in the period in
which the advertising space or airtime is used. Advertising expenses
totalled $nil, and $866,441 during the years ended December 31, 1998 and
1999, respectively.
(4)
F-10
<PAGE> 41
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
STOCK BASED COMPENSATION
The company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). Under APB No. 25, compensation expense is recognized based on the
difference, if any, on the date of grant between the estimated fair value
of the company's stock and the amount an employee must pay to acquire the
stock. Compensation expense is recognized immediately for past services and
rateably for future services over the option vesting period.
The company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with
SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force
in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling, Goods or
Services" (EITF 96-18). Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of the
equity instruments issued, whichever is more reliably measurable. The value
of equity instruments issued for consideration other than employee services
is determined on the date on which there first exists a firm commitment for
performance by the provider of goods or services as defined by EITF 96-18.
For purposes of valuing the company's stock-based compensation
transactions, the company uses the market price of its common shares, as
quoted on the OTC-bulletin board, on the measurement date for the
applicable transaction.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current
period and deferred tax liabilities and assets for future tax consequences
of events that have been recognized in the company's financial statements
or tax returns. The measurement of current and deferred tax liabilities and
assets are based on provisions of enacted tax laws; the effects of future
changes in tax laws or rates are not anticipated. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance,
where, based on available evidence, the probability of realization of the
deferred tax asset does not meet a more likely than not criterion.
LOSS PER COMMON SHARE
Loss per share computations are in accordance with SFAS No. 128, "Earnings
Per Share" and Staff Accounting Bulletin ("SAB") No. 98. Basic net loss per
share is computed using the weighted average number of common shares
outstanding, after giving retroactive effect to the 1:32 forward stock
split, as described in note 1. Diluted loss per share is computed using the
weighted average number of common and potentially dilutive shares
outstanding.
(5)
F-11
<PAGE> 42
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity from transactions
and other events and circumstances other than those resulting from
investments by owners and distributions to owners. Comprehensive income
consists of net income and other comprehensive income. The accumulated
balance of other comprehensive income is included in the equity section of
the balance sheet. The company's other comprehensive income consists of
foreign exchange translation adjustments.
SEGMENT INFORMATION
The company identifies its operating segments based on business activities,
management responsibility and geographical location. During the year ended
December 31, 1999, the company operated within a single operating segment,
being online couponing services, and operated in only one geographic area,
being Canada. In addition, substantially all of the company's assets are
located in Canada and substantially all of its revenues are earned in
Canada.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP98-1"). SOP98-1
provides guidance for determining whether computer software is internal-use
software and accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the
public. It also provides guidance on capitalization of the costs incurred
for computer software developed or obtained for internal use. The
disclosures prescribed by SOP98-1 are effective for the year ended December
31, 1999 consolidated financial statements. The adoption of SOP98-1 did not
have a material impact on the company's consolidated financial statements.
The company adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5) effective January 1, 1999. SOP 98-5 requires that all start-up
costs be expensed and that the effect of adopting SOP 98-5 be reported as
the cumulative effect of a change in accounting principle. The adoption of
SOP 98-5 did not have a material impact on the company's consolidated
financial statements.
In June 1998, the FASB issued Statement Number 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments,
embedded in other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for changes in fair value of the derivative depends
on the intended use of the derivative and the resulting designation. The
company does not expect that the adoption of SFAS 133 will have a material
impact on its consolidated financial statements.
(6)
F-12
<PAGE> 43
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
3 ACQUISITION
On August 6, 1999, the company acquired 100% of the issued and outstanding
shares of SUM Media Corp. (formerly E-Com Media Corp.), a British Columbia,
Canada company, in exchange for 3,200,000 common shares of the company. The
acquisition has been accounted for using the purchase method, whereby the
value of the consideration given has been allocated to the assets and
liabilities of SUM Media Corp. based on their estimated fair values. The
value of consideration given by the company of $13,000,000 was based on the
average quoted market price of the company's common stock on the
OTC-bulletin board on the date the terms of the acquisition were agreed to
including an allocation of acquisition costs of $1,000,000 (note 8). The
results of operations of SUM Media Corp. have been included in these
consolidated financial statements from the date of acquisition. The net
assets acquired and consideration given are as follows:
<TABLE>
<CAPTION>
$
<S> <C>
Net assets acquired at fair value on acquisition
Current assets acquired 240,065
Non-current assets acquired 399,008
Current liabilities assumed (210,344)
Non-current liabilities assumed (846,004)
Goodwill 13,417,275
------------
13,000,000
------------
Total consideration in common shares including allocation
of acquisition costs of $1 million (note 8) 13,000,000
============
Cash acquired 212,591
============
</TABLE>
4 BALANCE SHEET COMPONENTS
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
$
<S> <C>
Trade receivables 74,042
Less: Allowance for doubtful accounts (11,133)
Other 2,921
------------
65,830
============
</TABLE>
(7)
F-13
<PAGE> 44
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
SALES TAX RECOVERABLE
Sales tax recoverable relates to Canadian Goods and Services Taxes paid by
the company's Canadian subsidiary, SUM Media Corp., on purchases of goods
and services for operations.
PREPAID EXPENSES
Prepaid expenses relate primarily to monthly fees paid in advance for
product support, maintenance and upgrades of the company's enterprise
business system.
OTHER ASSETS
Other assets consist primarily of security deposits related to the
company's leased offices. Also included is a deposit in the amount $31,317
that the company is required to maintain as a condition under an office
sublease. The deposit may be accessed by the sublandlord in the event the
company defaults on a lease payment. The deposit must be maintained by the
company for the duration of the sublease period which expires in July 2003.
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
$ $ $
<S> <C> <C> <C>
Software 1,251,266 24,868 1,226,398
Computer equipment 417,152 75,223 341,929
Leased automobile 107,107 11,353 95,754
Office equipment 63,130 2,930 60,200
Furniture and fixtures 54,113 2,141 51,972
Leasehold improvements 66,546 1,978 64,568
---------- ------------ ----------
1,959,314 118,493 1,840,821
========== ============ ==========
</TABLE>
Software for the year ended December 31, 1999 includes $1,106,720 related
to the purchase of licences for an enterprise business system. No
amortization has been recorded for the year ended December 31, 1999
(1998 - $nil) related to the enterprise business system as it was not
available for use as at December 31, 1999.
For the period from December 7, 1990 (date of incorporation) to December
31, 1998, the company did not own property and equipment.
(8)
F-14
<PAGE> 45
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
(expressed in U.S. dollars)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
$
<S> <C>
Trade accounts payable 1,268,991
Vacation accrual 43,061
Employee payroll deductions 95,160
---------
1,407,212
=========
</TABLE>
5 RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, two shareholders advanced the
company $56,436 (1998 - $nil). The advances are unsecured, non-interest
bearing, and without stated terms of repayment.
The company incurred $133,458 for management consulting and related
services to a company controlled by a significant shareholder of the
company during the year ended December 31, 1999 (1998 - $nil). This
amount has been included in general and administrative expenses.
6 COMMITMENTS
a) The company has the following annual commitments for the rental of
office premises under the terms of operating leases:
<TABLE>
<CAPTION>
$
<S> <C>
2000 305,097
2001 305,097
2002 305,750
2003 237,742
2004 110,977
---------
1,264,663
=========
</TABLE>
Office lease payments for the year ended December 31, 1999 of $132,700
were included in general and administrative costs.
(9)
F-15
<PAGE> 46
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
(expressed in U.S. dollars)
b) The company has the following annual lease commitments for the company
automobile under the terms of a capital lease:
<TABLE>
<CAPTION>
CAPITAL
$
<S> <C>
2000 19,114
2001 19,114
2002 19,114
2003 29,650
---------
86,992
Amount representing interest (14,735)
---------
72,257
Less: Current portion (13,318)
---------
58,939
=========
</TABLE>
c) During November 1999, the company entered into an agreement with
Oracle Corporation Canada Inc. ("Oracle") for the purchase and
implementation of Oracle's enterprise business system software. Under
the terms of the agreement, the company agreed to purchase licences,
support, education and consulting services totalling $1,708,000. As at
December 31, 1999, the company had remaining commitments of
approximately $400,000. Also, under the terms of the agreement, the
company is to receive $104,000 related to advertising on the company's
website. The amount of the advertising fee negotiated by the two
companies was based on the advertising rates for similar previous cash
transactions taking into account the strategic value that Oracle has
to the company. The company is recognizing these revenues as the
underlying services are provided. As at December 31, 1999, the company
recognized revenue of $9,000 related to this agreement.
d) During December 1999, the company entered into an agreement with a
computer hardware manufacturer to purchase $410,000 of computer
equipment and consulting services. As at December 31, 1999, the
company has not received any of the computer equipment or related
consulting services and has not paid any amounts. Also, under the
terms of the agreement, the company is to receive $46,000 related to
advertising on the company's website. The amount of the advertising
fee negotiated by the two companies was based on the advertising rates
for similar previous cash transactions taking into account the
strategic value that the computer hardware manufacturer has to the
company. The company is recognizing these revenues as the underlying
services are provided. As at December 31, 1999, the company has not
recognized any revenues related to this agreement.
7 INCOME TAXES
The company is subject to U.S. federal and Colorado State income taxes in
the U.S. and Canadian federal, and Ontario and British Columbia provincial
taxes in Canada.
At December 31, 1999, the company has net operating loss carryforwards of
approximately $3,806,000, arising from Canadian operations, available to
reduce future Canadian taxable income and approximately $299,000, arising
from U.S. operations available to reduce future U.S. taxable income. The
Canadian losses expire in
(10)
F-16
<PAGE> 47
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
(expressed in U.S. dollars)
2006 and the U.S. losses expire in 2019. The potential benefits relating to
these losses have not been recognized in these consolidated financial
statements.
The components of loss for the year are as follows:
<TABLE>
<CAPTION>
Period from
Year ended December 31, September 7, 1990
------------------------ (date of incorporation) to
1999 1998 December 31, 1999
---- ---- --------------------------
<S> <C> <C> <C>
Canada (3,349,155) -- (3,349,155)
U.S. (4,965,616) (4,500) (5,025,346)
---------- ------ ----------
(8,314,771) (4,500) (8,374,501)
</TABLE>
Net deferred tax assets are composed of the following at December 31, 1999:
<TABLE>
<CAPTION>
Canada U.S.
$ $
<S> <C> <C>
Net operating loss carryforwards 1,733,000 102,000
Gross deferred tax assets 54,000 938,000
Deferred tax asset valuation allowance (1,787,000) (1,004,000)
---------- ----------
Net deferred tax assets -- --
========== ==========
</TABLE>
Based on a number of factors including, the lack of a history of profits,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance has
been provided.
The income tax provision for the year ended December 31, 1999, differs from
the amount obtained by applying the applicable statutory income tax rates
to loss before income taxes as follows:
<TABLE>
<CAPTION>
$
<S> <C>
Statutory income tax rate 40.72%
Income tax recovery based on the statutory rate (3,420,000)
Non-deductible expenses 858,000
Differences from statutory rate relating to tax effect
of loss benefits which have been recorded 2,562,000
----------
--
==========
</TABLE>
8 CAPITAL STOCK
COMMON SHARES
Holders of common shares are entitled to one vote per share on all matters
submitted to a vote of the shareholders of the company. Subject to
preferences that may apply to preferred shares outstanding, the holders of
common shares are entitled to receive dividends out of assets legally
available at such time and in such amounts as the Board of Directors may
from time to time determine. Upon the occurrence of a liquidation,
dissolution or winding up of the assets of the company, the holders of
common shares will be entitled to share rateably in the distribution of all
assets remaining available for distribution after satisfaction of all
liabilities and the payment of any liquidation preference on any
outstanding preferred shares.
(11)
F-17
<PAGE> 48
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
(expressed in U.S. dollars)
As at December 31, 1998, the authorized common shares of the company
consisted of 50,000,000 common shares with a par value of $0.001 of which
2,000,000 common shares were issued and outstanding and 10,000,000
preferred shares of which none were issued and outstanding. Pursuant to a
June 4, 1999 Board of Directors resolution, the sole director and officer
of the company agreed to the cancellation of 1,500,000 shares previously
issued as compensation for management services. On June 16, 1999, the Board
of Directors passed a resolution to adopt a forward stock split at a ratio
of 1:32 with the effect that the total issued and outstanding shares
increased to 16,000,000. Concurrently, the sole director and officer of the
company executed a formal waiver of the right to receive 6,210,000
post-split shares. As a result, the number of issued and outstanding shares
then totalled 9,790,000. The forward stock split has been applied
retroactively to all periods presented.
On June 24, 1999, the company's Articles of Incorporation were amended to
increase the company's authorized common shares to 65,500,000 shares,
decrease the company's authorized preferred shares to 1,000,000 shares and
increase the company's common share par value to $0.01.
PREFERRED SHARES
All series of preferred shares shall be alike except that there may be
variations, as determined by the Board of Directors, as to:
a) right of dividend;
b) terms, conditions, and price of redemption;
c) amounts payable upon either voluntary and/or involuntary liquidation;
d) sinking fund provisions, if any, for the call or redemption of the
shares;
e) terms and conditions of conversion, if any; and
f) voting rights consistent with Colorado law.
Before issuing any shares of a class or series, the preferences,
limitations and relative rights of which are determined by the Board of
Directors, the company shall deliver to the Colorado Secretary of State
appropriate Articles of Amendment, as required by law.
As at December 31, 1999, no preferred shares were issued and outstanding.
(12)
F-18
<PAGE> 49
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
PRIVATE PLACEMENTS
ISSUE CASH PROCEEDS WARRANT
PRICE PER AND SHARE EXERCISE WARRANT
EQUITY UNIT SUBSCRIPTIONS PRICE EXPIRY FROM
DATE OF ISSUANCE UNITS* $ $ $ ISSUANCE DATE
(000's)
<S> <C> <C> <C> <C> <C>
August 1999 1,000,000 1.00(i) 1,000 3.00 24 months
September 1999 500,000 3.00(ii) 1,500 4.50 12 months
September 1999 500,000 3.00 1,500 4.50 12 months
December 1999 1,000,000 3.00(iii) 3,000 5.00 12 months
December 1999 100,000 3.25 325 4.25 12 months
December 1999 31,000 3.25 101 4.00 12 months
December 1999 21,000 3.25 68 4.00 12 months
</TABLE>
(*) Equity units are comprised of one common share plus one share purchase
warrant
i) In conjunction with the acquisition of SUM Media Corp. (note 3)
on August 6, 1999 (the "Acquisition"), the following
transactions occurred concurrently with the Acquisition.
Tigerlily Financial Inc. ("Tigerlily") and Cambridge Asset
Holdings S.A. ("Cambridge"), consultants to the companies in
arranging the transaction, each acquired 1,125,000 common shares
of SUM Media Corp. for nominal consideration from two
significant shareholders. These common shares were immediately
exchanged for a total of 800,000 common shares of the company
pursuant to the Acquisition. Tigerlily and Cambridge invested a
total of $1,000,000 in the company for 1,000,000 units
consisting of one common share and one share purchase warrant
entitling the holder to purchase one common share at a price of
$3 per share for a period of 24 months. These units were
transferred by Tigerlily and Cambridge to two significant
shareholders of the company who were officers and directors of
the company. Based on these facts, the Company recorded an
issuance of 800,000 common shares to Tigerlily and Cambridge for
cash proceeds of $1,000,000. The fair value of the 800,000
common shares, based on the quoted market value of the Company's
stock on the OTC bulletin board of $3.75 per share at the time
the private placement was announced, exceeded the proceeds
received by the Company by $2,000,000. Of this amount $1,000,000
has been allocated as a direct cost of the Acquisition and the
remaining $1,000,000 has been recorded as stock based
compensation related to other services provided to the Company
and its shareholders prior to the Acquisition. The allocation of
the $2,000,000 was based on management's estimates of the fair
value of the acquisition services as well as other financial
advisory services provided by Tigerlily and Cambridge. The
allocation of the $2,000,000 between acquisition and stock based
compensation costs are based on management's estimate of the
fair value of these services. The two significant shareholders
effectively received the remaining 200,000 common shares and
1,000,000 share purchase warrants which have been recorded as
stock based compensation expense in the amount of $1,500,000.
ii) At December 31, 1999, $125,000 has not been received and
recorded as subscriptions receivable.
iii) Consists of three separate private placements completed
concurrently. In conjunction with these private placements, the
company issued 159,900 options entitling the holder to purchase
one common share at a price of $3 per share. The options expire
September 9, 2002. The exercise price for the options granted
was equal to the market value of the underlying stock quoted on
the OTC-bulletin board at the date of grant. The company also
incurred finders' fees of $60,000 related to these private
placements.
<TABLE>
<CAPTION>
WARRANTS
NUMBER OF EXERCISE PRICE
EXPIRY DATE COMMON SHARES $
<S> <C> <C>
September 2000 1,000,000 4.50
December 2000 1,000,000 5.00
December 2000 100,000 4.25
December 2000 52,000 4.00
August 2001 1,000,000 3.00
September 2002 159,900 3.00
</TABLE>
(13)
F-19
<PAGE> 50
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
STOCK OPTION PLAN
In October 1999, the company's Board of Directors adopted the 1999 Stock
Option Plan (the "Plan"). The Plan provides for the issuance of up to 20%
of the issued and outstanding common shares of the company in connection
with incentive and non-statutory stock option awards granted to employees,
directors and consultants to the company. Options will be issued in
amounts in accordance with terms and conditions as determined by the
company's Board of Directors. The stock option plan is subject to
regulatory shareholder approval.
A summary of activity under the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
COMMON PER SHARE
SHARES $
<S> <C> <C>
Balance - January 1, 1999 -- --
Granted November 4, 1999 2,339,000 3.12
Granted November 4, 1999 (a) 483,000 3.44
---------- ------------
Balance - December 31, 1999 2,822,000 3.12 - 3.44
========== ============
</TABLE>
(a) These options were issued to shareholders/officers holding more
than 10% of total issued capital at the grant date. As such, the
option exercise price was set at a 10% premium to the market
value on that day pursuant to the terms of the stock option
plan.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER OF WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
$ $
<S> <C> <C> <C> <C> <C>
$3.12 - $3.44 2,822,000 10 years 3.17 677,280 3.17
</TABLE>
Of the options granted during the year, 593,280 vested immediately, an
additional 988,800 vest November 4, 2000 and the remainder vest equally
over the following twelve months. Once vested, the options may be
exercised for a period of up to ten years from the date of grant. The
exercise price for the options granted approximated the market value of
the underlying stock quoted on the OTC-bulletin board at the date of
grant.
(14)
F-20
<PAGE> 51
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
STOCK-BASED COMPENSATION
The company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees". This method recognizes
compensation cost as the amount by which the fair value of the stock
exceeds the exercise price at the date of grant.
Had the company determined compensation costs based on fair value at the
date of grant for its awards under a method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation" the company's loss and loss per share would be as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Loss for the period (8,314,771) (4,500)
Additional compensation expense (3,539,852) --
-------------- ------------
Pro forma loss for the period (11,854,623) (4,500)
============== ============
Pro forma basic and fully diluted loss per share (0.34) --
============== ============
</TABLE>
The pro forma compensation expense reflected above has been estimated
using the Black-Scholes option-pricing model. Assumptions used in the
pricing model included:
a) risk free interest rate of 5.9%,
b) expected volatility of 80%;
c) expected dividend yield of nil; and
d) an estimated average life of two years.
9 REGIONAL EXCLUSIVITY FEES
During the year ended December 31, 1999, revenue of $46,756 (1998 - $nil)
from regional exclusivity fees was recognized, and offset by a
corresponding amount of cost of sales related to the sale of marketing
rights in three regions.
(15)
F-21
<PAGE> 52
SUMmedia.com INC.
(formerly Reliance Resources Inc.)
(a development stage company)
Notes to Consolidated Financial Statements
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
10 SUPPLEMENTAL CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1990 (INCEPTION
OF DEVELOPMENT
STAGE) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
$ $ $
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes -- -- --
Cash paid for interest 4,794 -- 4,794
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common shares for acquisition of
SUM Media Corp. 12,000,000 -- 12,000,000
Stock based compensation 2,500,000 -- 2,500,000
Share subscriptions receivable 125,000 -- 125,000
</TABLE>
4 SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the company:
a) Received proceeds of $479,700 and issued 159,900 common shares related to
the exercise of 159,900 options.
b) Completed a $4,000,000 private placement, with a publication company, of
1,000,000 units, whereby each unit consists of one common share and one
share purchase warrant. Each warrant allows the holder to purchase one
common share for $6.00 per share for a period of 12 months. Concurrent
with the receipt of these proceeds, the company paid $4,000,000, to the
publication company, for advertising services to be provided in fiscal
2000.
c) Completed a $1,001,000 private placement of 308,000 units, each unit
consisting of one common share and one share purchase warrant. Each
warrant allows the holder to purchase one common share for $4.25 for a
period of 12 months.
d) Completed a $3,675,000 private placement of 700,000 units, each unit
consisting of one common share and one share purchase warrant. Each
warrant allows the holder to purchase one common share for $7.00 for a
period of 12 months.
e) Completed a $105,000 private placement of 20,000 units, each unit
consisting of one common share and one share purchase warrant. Each
warrant allows the holder to purchase one common share for $7.00 for a
period of 12 months.
f) Granted 50,000 stock options to directors of the company. These stock
options have an exercise price of $5.25 and expire in February of 2010.
g) Was notified of a legal action which was filed against the company by
a former officer and director of the company for unfair dismissal. The
amount and timing of any potential claim cannot be reasonably estimated at
this time.
(16)
F-22
<PAGE> 53
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Financial Statements
AUGUST 6, 1999
(expressed in U.S. dollars)
F-23
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SUM MEDIA CORP.
In our opinion, the accompanying statements of operations, cash flows and
shareholders' equity (deficit), present fairly, in all material respects, the
results of SUM MEDIA CORP.'S (formerly E-Com Media Corp.) operations and its
cash flows for the period from March 23, 1999 (date of incorporation) to August
6, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in note 1 to the
financial statements, the company has suffered a loss from operations that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Vancouver, Canada
January 21, 2000
F-24
<PAGE> 55
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Statement of Operations
FOR THE PERIOD FROM MARCH 23, 1999 (DATE OF INCORPORATION) TO AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
$
<S> <C>
SALES (note 3) 16,515
COST OF SALES 8,574
-----------
GROSS PROFIT 7,941
-----------
OPERATING EXPENSES
Stock based compensation 2,581,031
General and administrative 258,980
Marketing 204,509
Amortization of property and equipment 17,754
-----------
3,062,274
-----------
LOSS FOR THE PERIOD (3,054,333)
===========
</TABLE>
SUBSEQUENT EVENT (note 1)
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 56
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Statement of Cash Flows
FOR THE PERIOD FROM MARCH 23, 1999 (DATE OF INCORPORATION) TO AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
$
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Loss for the period (3,054,333)
Adjustments to reconcile loss for the period to net cash used in
operating activities
Amortization of property and equipment 17,754
Stock based compensation 2,581,031
Changes in non-cash working capital
Accounts receivable (2,266)
Sales tax recoverable (23,874)
Prepaid expenses (1,605)
Accounts payable and accrued liabilities 73,322
Deferred revenue 125,646
-----------
(284,325)
-----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common shares 59,749
Loan from SUMmedia.com Inc. (note 4) 524,429
Due to related parties 268,987
Repayment of capital lease obligations including initial deposit (23,425)
-----------
829,740
-----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Other assets (76,647)
Purchases of property and equipment (245,659)
-----------
(322,306)
-----------
FOREIGN EXCHANGE EFFECT ON CASH (10,518)
-----------
INCREASE IN CASH AND CASH EQUIVALENTS BEING CASH AND CASH EQUIVALENTS - END OF
PERIOD 212,591
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 57
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Statement of Shareholders' Equity (Deficit)
FOR THE PERIOD FROM MARCH 23, 1999 (DATE OF INCORPORATION) TO AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------------ COMPRE- SHAREHOLDERS'
HENSIVE EQUITY
SHARES AMOUNT DEFICIT INCOME (DEFICIT)
------------ ------------ ------------ ------------ -------------
$ $ $ $
<S> <C> <C> <C> <C> <C>
BALANCE - MARCH 23, 1999 -- -- -- -- --
Issuance of 9,000,001 common shares for
Cdn. $0.01 cash per share in March 1999 9,000,001 59,749 -- -- 59,749
Stock-based compensation (note 7) -- 2,581,031 -- -- 2,581,031
Foreign currency translation adjustment -- -- -- (3,722) (3,722)
Loss for the period -- -- (3,054,333) -- (3,054,033)
------------ ------------ ------------ ------------ ------------
Total comprehensive income -- -- -- -- (3,058,055)
------------ ------------ ------------ ------------ ------------
BALANCE - AUGUST 6, 1999 9,000,001 2,640,780 (3,054,333) (3,772) (417,275)
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 58
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
THE COMPANY
SUM Media Corp. (the "company" or "SUM Media") is an Internet media and
marketing company that provides online coupons for small and medium sized
businesses through its portal, savingumoney.com. The company's business
consists of providing Internet marketing initiatives including coupons,
discount shopping and website design and hosting, as well as selling
exclusive regional rights to market the company's products. For the period
ended August 6, 1999, the majority of the company's customers were located
in Canada.
The company was incorporated on March 23, 1999, as E-Com Media Corp. under
the laws of the Province of British Columbia, Canada and on March 26, 1999
changed its name to SUM Media Corp. On August 6, 1999, SUM Media entered
into a share exchange agreement with Reliance Resources Inc. ("Reliance"),
a Colorado company, quoted on the OTC-bulletin board. Pursuant to the
terms of the agreement, Reliance issued 3,200,000 common shares to acquire
100% of the issued and outstanding shares of SUM Media. Subsequent to the
share exchange, Reliance changed its name to SUMmedia.com Inc. ("SUM").
GOING CONCERN
The company has not yet generated significant revenues and has no
assurance of future profitability. Even if marketing efforts are
successful, substantial time may pass before profitability will be
achieved. During this time, the company will require additional financing.
The company has losses from operations that raise substantial doubt about
its ability to continue as a going concern.
These audited financial statements have been prepared on the basis of
accounting principles applicable to a going concern which assume the
realization of assets and discharge of liabilities in the normal course of
business. The company is in discussions with financing institutions with
respect to securing equity financing. However, there are no assurances
that the company will be successful in closing such financing
transactions.
The company's ability to continue as a going concern is dependent upon
obtaining additional financing through its parent company or otherwise and
upon its ability to attain profitable operations. These financial
statements do not give effect to any adjustments that would be necessary
should the company not be able to continue as a going concern.
DEVELOPMENT STAGE
The company's activities since incorporation on March 23, 1999, have
primarily consisted of establishing facilities, recruiting personnel,
conducting research and development and developing business and financial
plans. Accordingly, the company is considered to be in the development
stage. The accompanying financial statements should not be regarded as
typical for a normal operating period.
(1)
F-28
<PAGE> 59
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2 SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires the company's
management to make estimates and assumptions which affect the amounts
reported in these financial statements and the notes thereto. Actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSACTIONS
The company's functional currency is the Canadian dollar. The financial
statements are translated to United States dollars using the period-end
exchange rate for assets and liabilities and weighted-average exchange
rates for the period for revenues and expenses. Translation losses are
deferred and accumulated as a component of other comprehensive income in
shareholders' equity (deficit). Net gains and losses resulting from
foreign exchange transactions are included in the statement of operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term interest bearing securities with maturities at the date of
purchase of three months or less. Interest earned is recognized
immediately in the statement of operations.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents, accounts receivable and sales tax recoverable which are
not collateralized. The company limits its exposure to credit loss by
placing its cash and cash equivalents with high credit quality financial
institutions. Concentrations of credit risk with respect to accounts
receivable are considered to be limited due to the low average billing and
large number of customers comprising the company's customer base. The
company performs ongoing credit evaluations of its customers' financial
condition to determine the need for an allowance for doubtful accounts.
The company has not experienced significant credit losses to date.
(2)
F-29
<PAGE> 60
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated amortization.
Property and equipment are amortized on a straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Software 1 year
Computer equipment 2 years
Leased automobile 3 years
Office equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements the remaining lease term
</TABLE>
REVENUE RECOGNITION
Revenues from the placement of customers' online coupons on the company's
website for fixed or determinable fees are recognized rateably over the
period of the contract unless collection is not reasonably assured in
which case revenues are recognized when cash payments are received.
Revenues from regional exclusivity fees for the exclusive right to market
the company's products in predefined regions are recognized when the
initial set-up and training services are completed and the company is
satisfied that all significant obligations under the terms of the
agreements have been met and collectibility of the related fees is
reasonably assured. To the extent uncertainties exist in connection with
the company's obligations related to regional exclusivity fees, the
company only records revenues to the extent of costs incurred. In such
circumstances, amounts received in excess of revenue recognized are
included in deferred revenue.
STOCK BASED COMPENSATION
The company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", ("APB No. 25") and
complies with the disclosure provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Under APB No. 25, compensation expense is recognized
based on the difference, if any, on the date of grant between the
estimated fair value of the company's stock and the amount an employee
must pay to acquire the stock. Compensation expense is recognized
immediately for past services and rateably for future services over the
option vesting period.
For purposes of valuing the company's stock-based compensation
transactions, the company used the market price of SUM's common stock, as
quoted on the OTC-bulletin board, on the measurement date for the
applicable transaction. SUM's common stock price was used as management
believes this to be the most objective indicator of the fair value of the
company's common stock due to the share exchange transaction (note 1)
announced on July 7, 1999.
(3)
F-30
<PAGE> 61
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity from transactions
and other events and circumstances other than those resulting from
investments by owners and distributions to owners. Comprehensive income
consists of net income and other comprehensive income. The accumulated
balance of other comprehensive income is included in the statement of
shareholders' equity (deficit). The company's other comprehensive income
consists of foreign currency translation adjustments.
SEGMENT INFORMATION
The company identifies its operating segments based on business
activities, management responsibility and geographical location. During
the period ended August 6, 1999, the company operated within a single
operating segment being online couponing services and operated in only one
geographic area being Canada. In addition, substantially all of the
company's assets are located in Canada and substantially all of its
revenues are earned in Canada.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement Number 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments,
embedded in other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for changes in fair value of the derivative depends
on the intended use of the derivative and the resulting designation. The
company does not expect that the adoption of SFAS 133 will have a material
impact on its financial statements.
3 REGIONAL EXCLUSIVITY FEES
During the period ended August 6, 1999, revenue of $8,574 from regional
exclusivity fees was recognized, and offset by a corresponding amount of
cost of sales related to the sale of marketing rights in three regions.
4 RELATED PARTY TRANSACTIONS
During the period ended August 6, 1999, SUMmedia.com Inc., which became
the company's parent company on August 6, 1999, advanced the company
$524,429. The advance is unsecured, non-interest bearing, and without
stated terms of repayment.
The company incurred $65,701 for management consulting and related
services to a company controlled by a shareholder of the company for the
period from March 23, 1999 to August 6, 1999. This amount has been
included in general and administrative expenses.
(4)
F-31
<PAGE> 62
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
5 COMMITMENTS
The company has the following annual commitments for the rental of office
premises under the terms of operating leases:
<TABLE>
<CAPTION>
$
<S> <C>
2000 113,157
2001 113,157
2002 113,157
2003 66,009
--------
405,480
========
</TABLE>
Office lease payments for the period from March 23, 1999 to August 6, 1999
of $26,593 were included in general and administrative costs.
The company has the following annual lease commitments for the company
automobile under capital lease:
<TABLE>
<CAPTION>
CAPITAL
$
<S> <C>
1999 7,631
2000 18,315
2001 18,315
2002 18,315
2003 28,410
-------
90,986
Amount representing interest (16,754)
-------
74,232
Less: Current portion (13,318)
-------
60,914
=======
</TABLE>
6 INCOME TAXES
The company is subject to Canadian federal taxes, and Ontario and British
Columbia provincial taxes in Canada. All income and tax balances for the
period to August 6, 1999 relate to Canada.
At August 6, 1999, the company had net operating loss carryforwards of
approximately $450,000 available to reduce future taxable income. These
losses expire in 2006. The potential benefits relating to these losses
have not been recognized in the financial statements. Net deferred tax
assets are composed of the following:
(5)
F-32
<PAGE> 63
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
$
<S> <C>
Net operating loss carryforwards 205,000
Temporary difference -amortization of property and equipment 8,000
Deferred tax asset valuation allowance (213,000)
----------
Net deferred tax assets --
==========
</TABLE>
Based on a number of factors, including the lack of a history of profits,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance
has been provided.
The income tax provision for the period ended August 6, 1999 differs from
the amount obtained by applying the statutory Canadian federal and
provincial income tax rate to loss before income taxes as follows:
<TABLE>
<CAPTION>
$
<S> <C>
Statutory Canadian federal and provincial income tax rate 45.52%
Income tax recovery based on the statutory rate (1,390,000)
Non-deductible expenses 1,175,000
Differences from statutory rate relating to tax effect of loss
benefits which have been recorded 215,000
------------
--
============
</TABLE>
7 CAPITAL STOCK
Authorized capital consists of 30,000,000 common shares without par value
of which 9,000,001 shares were issued and outstanding as at August 6,
1999.
STOCK BASED COMPENSATION
For the period ended August 6, 1999, a significant shareholder transferred
1,940,625 common shares to certain key executives, officers and
consultants of the company for $nil cash consideration. The consulting
services related to various general corporate and sundry matters.
These common shares were subsequently exchanged for 690,000 shares of
SUMmedia.com Inc. as part of the share exchange transaction described in
note 1. Management estimated the fair value of these shares at the time of
issuance to be $1.33 per share after taking into account the share
exchange ratio for the transaction. This transaction has been accounted
for as a capital contribution. As such, the company recorded $2,581,031 of
stock based compensation expense with a corresponding amount to common
shares.
(6)
F-33
<PAGE> 64
SUM MEDIA CORP.
(formerly E-Com Media Corp.)
(a development stage company)
Notes to Financial Statements
AUGUST 6, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
8 SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
$
<S> <C>
CASH PAID FOR INTEREST --
CASH PAID FOR INCOME TAXES --
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations 98,388
Issuance of common stock
Stock based compensation 2,581,031
</TABLE>
(7)
F-34
<PAGE> 65
HENRY SCHIFFER, C.P.A.
A PROFESSIONAL CORPORATION
315 S. Beverly Drive, Suite 302
Beverly Hills, California 90212
Tel. (310) 286 6830 Fax. (310) 286 6840
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
Pursuit Venture Corporation
I have audited the accompanying balance sheets of Pursuit Venture Corporation at
December 31, 1997 and 1996 and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material aspects, the financial position of Pursuit Venture Corporation at
December 31, 1997 and 1996 and the results of its operations, stockholders'
equity and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Henry Schiffer
- -----------------------------
Henry Schiffer
Certified Public Accountant
July 16, 1998
F-35
<PAGE> 66
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
Current Assets: 1997 1996
- --------------- ---- ----
Cash and equivalents 0 0
------- -------
Total Assets 0 0
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
- --------------------
Accounts payable and accrued expenses 20,000 13,000
Stockholders' Equity:
- ---------------------
Preferred stock - 1,000,000 shares
authorized; issued and outstanding
none @ $0.01 par value -- --
Common stock - 5,000,000 shares authorized;
issued and outstanding 500,000 shares at
December 31, 1997 and 270,000 shares at 1996
@ $.001 par value (Notes 1 and 2) 500 270
Paid in capital (Note 2) 34,730 34,730
Deficit accumulated during the
development stage (55,230) (48,000)
------- -------
Total Stockholders'Equity (Deficit) (20,000) (13,000)
------- -------
Total Liabilities and Stockholders'Equity 0 0
======= =======
F-36
<PAGE> 67
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 7, 1990) TO DECEMBER 31, 1997
Year Ended Period from Inception
---------------- (December 7, 1990) to
1997 1996 December 31, 1997
---- ---- -----------------
Revenue: 0 0 0
Operating Expenses:
Expenses incurred in connection
with securities registration 0 0 12,087
Officer and director fees 230 0 230
Amortization of organization costs 0 0 5,000
Professional fees 0 0 5,028
Travel expenses 0 0 1,324
Transfer agent fees 0 0 1,449
Accounting fees 7,000 3,500 20,000
Other expenses 0 0 10,112
Total operating expenses 7,230 3,500 55,230
Net (loss) (7,230) (3,500) (55,230)
-------- -------- --------
Weighted number of shares outstanding 327,500 270,000 327,500
======== ======== ========
Net (loss) per share (.02) (.01) (.17)
======== ======== ========
F-37
<PAGE> 68
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (DECEMBER 7, 1990) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares During Total
----------------- Paid In Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C>
December 7, 1990
Issuance of 270,000 units
(consisting of one share of common
stock and one warrant) for
$0.0185185 cash per unit 270,000 270 4,730 0 5,000
Net loss 0 0 0 (12,368) (12,368)
------- ------- ------- ------- ------
Balance, December 31, 1990 270,000 270 4,730 (12,368) (7,368)
Net loss, year ended
December 31, 1991 0 0 0 (5,877) (5,877)
------- ------- ------- ------- -------
Balance, December 31, 1991 270,000 270 4,730 (18,245) (13,245)
Net loss, year ended
December 31, 1992 0 0 0 (9,391) (9,391)
------- ------- ------- ------- -------
Balance, December 31, 1992 270,000 270 4,730 (27,636) (22,636)
Paid in Capital (note 2)` 0 0 30,000 0 30,000
Net loss, year ended
December 31, 1993 0 0 0 (5,846) (5,846)
------- ------- ------- ------- -------
Balance, December 31, 1993 270,000 270 34,730 (33,482) 1,518
Net loss, year ended
December 31, 1994 0 0 0 (6,600) (6,600)
------- ------- ------- ------- -------
Balance, December 31, 1994 270,000 270 34,730 (40,082) (5,082)
</TABLE>
F-38
<PAGE> 69
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
FOR THE PERIOD FROM INCEPTION (DECEMBER 7, 1990) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares During Total
----------------- Paid In Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 270,000 270 34,730 (40,082) (5,082)
Net loss, year ended
December 31, 1995 0 0 0 (4,418) (4,418)
------- ------- ------- ------- -------
Balance, December 31, 1995 270,000 270 34,730 (44,500) (9,500)
Net loss, year ended
December 31, 1996 0 0 0 (3,500) (3,500)
------- ------- ------- ------- -------
Balance, December 31, 1996 270,000 270 34,730 (48,000) (13,000)
Stock issued for officer
and director fees 230,000 230 0 0 230
Net loss, year ended
December 31, 1997 0 0 0 (7,230) (7,230)
------- ------- ------- ------- -------
Balance, December 31, 1997 500,000 500 34,730 (55,230) (20,000)
======= ======= ======= ====== ======
</TABLE>
F-39
<PAGE> 70
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 7, 1990) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Year Ended Period from Inception
---------------- (December 7, 1990) to
1997 1996 December 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) (7,230) (3,500) (55,230)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities
Amortization of organization expenses 0 0 5,000
Increase (decrease) in accounts payable
and accrued expenses 7,000 3,500 20,000
NET CASH (USED) BY
OPERATING ACTIVITIES (230) (0) (30,230)
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs 0 0 (5,000)
CASH PROVIDED FROM
INVESTING ACTIVITIES 0 0 (5,000)
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of common stock 0 0 5,000
Common stock issued for services 230 0 230
Paid in capital from shareholders (Note 2) 0 0 30,000
Borrowings of long-term debt,
related party (Note 2) 0 0 0
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 230 0 35,230
NET INCREASE (DECREASE) IN CASH 0 0 0
CASH BALANCE, BEGINNING OF PERIOD 0 0 0
CASH BALANCE, END OF PERIOD 0 0 0
======= ======= =======
</TABLE>
F-40
<PAGE> 71
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies
This summary of significant accounting policies of Pursuit Venture
Corporation is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
(a) Organization and Business Activities:
The Company was incorporated on December 7, 1990 under the laws
of the State of Delaware.
The Company's principal purpose is to seek out business
opportunities, including acquisitions, that the Board of
Directors, in its discretion, believes to be a potential for long
term growth.
Upon incorporation, the Company issued 270,000 shares of its
common stock and 270,000 warrants to Fountain Colony Holding
Corporation (formerly known as Argyle Funding, Incorporated)
hereinafter oFountaino as its sole stockholder. Upon issuance of
the shares, Fountain contributed $5,000 to the capital of the
Company and advanced funds of $30,000 to the Company (see note
2). Fountain created the Company for the express purpose of
distributing its ounitso to the shareholders of Fountain in order
to create a publicly-owned company to acquire a privately-held
business which, in the opinion of management, has the potential
for growth and profit. Each ounito consists of one share of
common stock, $0.001 par value, and one warrant to purchase an
additional share of common stock of the Company at an exercise
price of $10 per share. During 1992, Fountain distributed 257,844
ounitso (and cash of $1,216 in lieu of units in certain
instances) to the stockholders of Fountain based on their
respective pro-rata ownership of Fountain. The warrants were
never exercised and expired November 30, 1992.
The Company is currently in the development stage. The Company
has not as yet commenced any operations or identified any
potential acquisition opportunities. There is no assurance that
the Company will be able to acquire a satisfactory business on
terms favorable to the Company or profitably operate any business
so acquired.
(b) Organization costs:
Organization costs consist of accounting and legal fees and are
being amortized over a 60-month period.
(c) Fiscal Year:
The Company operates on a calendar year basis.
F-41
<PAGE> 72
PURSUIT VENTURE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies (continued)
(d) Basis of Operation:
The Company prepares its financial statements and federal income
taxes on the accrual basis of accounting.
Note 2 Note due to Related Party
The Company had an unsecured note payable to Fountain in the amount of
$30,000. The note accrued interest at 10% per annum. In 1993 the
shareholders of Fountain elected to cancel the note and all accrued
interest and provide the funds to the Company as additional paid-in
capital. The Company reversed all accrued interest payable to Fountain
as an offset to expenses in 1993.
Note 3 Capital Structure
The Company's Articles of Incorporation authorized two classes of
stock; preferred and common. Preferred stock authorized; 1,000,000
shares at a par value of $.01. There are no issued and outstanding
preferred shares. The terms, conditions, preferences and provisions of
the preferred stock have not, as of this date, been established, but
rather will be established by the Company's Board of Directors.
The Company has 5,000,000 shares of common stock authorized at a par
value of $.001. There are 500,000 shares issued and outstanding.
During 1997 the Company issued 230,000 shares of common stock to its
sole officer and director for services provided to the Company his
sole capacity as the Company's board member, President, Chief
Financial Officer and Secretary.
Note 4 Income Taxes
At December 31, 1997, the Company has a federal operating loss
carryforward of $55,230 for financial accounting and federal income
tax purposes. Utilization of the net operating loss in any taxable
year during the carryforward period may be subject to an annual
limitation due to the ownership change limitations imposed by the tax
law.
F-42
<PAGE> 73
PART III
ITEM 1. INDEX TO EXHIBITS
The following is a list of all exhibits filed as a part of this
registration statement or, as noted, incorporated by reference to this
registration statement:
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description and Method of Filing
----------- --------------------------------
<S> <C>
Exhibit 2.1 Share Purchase Agreement between JCC Consulting
Services, Ltd., Corbridge Asset Holdings S.A.,
Tigerlily Financial Inc., Grant Peterson,
Jihong Zhang, Andre Dragon, Dennis Malloy.
Albert Szajman, John Veltheer, David Lewis,
Reliance Resources Inc. and SUMmedia Corp.
dated June 11, 1999.*
Exhibit 3.1.1 Amended and Restated Articles of Incorporation
dated June 23, 1999.*
Exhibit 3.1.2 Articles of Amendment dated August 20, 1999
(incorporated by reference to the registrant's
Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999).
Exhibit 3.2 Bylaws adopted by registrant on August 10,
1998.*
Exhibit 10.1 Software License and Services Agreement between
SUMmedia.com and Oracle Corporation Canada
Inc.*
Exhibit 21 Subsidiaries of the Registrant.*
Exhibit 27 Financial data schedule.*
Exhibit 99.1 Financial Statements from the Annual Report on
Form 10-KSB for the year ended December 31,
1997 incorporated by reference to the same.
Exhibit 99.2 Financial Statements from the Annual Report on
Form 10-KSB for the year ended December 31,
1998 incorporated by reference to the same.
</TABLE>
- ---------------
* Previously filed as part of Issuer's Registration Statement on Form 10-SB
filed March 2, 2000.
