Part 1. Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition
And Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion contains figures relating to plans,
expectations, future results, performance, events or other matters that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended. When used in the Plan of Operations (see section
below), words such as "estimate", "project", "intend", "expect", "anticipate"
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements involve numerous risks and uncertainties
pertaining to technology, development of the Company's products, and markets for
such products, timing and level of customer orders, competitive products and
pricing, changes in economic conditions and markets for the Company's products
and other risks and uncertainties. Actual results, performance and events are
likely to differ and may differ materially and adversely. Investors are
cautioned not to place undue reliance on these forward-looking statements which
speak only as to the date of the Plan of Operations, being August 31, 2000, the
date of the Company's last-completed fiscal year. The Company undertakes no
obligation to release or deliver to investors revisions to these forward-looking
statements to reflect events or circumstances after the date of the Plan of
Operations, the occurrence of unanticipated events or other matters.
(a) GENERAL
The Company began operations in February 1998 for the purpose of
developing its multimedia proprietary product: the i.d.rom. The Company has a
limited operating history on which to evaluate its prospects. The risks,
expense, and difficulties encountered by startup companies must be considered
when evaluating the Company's prospects. The Company's plan of operations for
the next twelve months is to broaden its products and service offerings while
seeking strategic alliances with marketing, CRM and media companies in order to
demonstrate its technology to companies and consumers. The Company believes that
its existing funds in combination with funds raised in private offerings and the
revenues generated by its operations will be sufficient to fund its operations
for the next twelve months. However, there is no guarantee that the Company will
be able to raise sufficient capital. Additionally, the Company's estimates of
the costs to advertise and market its product might be low. The operating
expenses of the Company cannot be predicted with certainty. They will depend on
several factors, including the amount of marketing expenses, the acceptance of
the Company's products in the market, and competition for such product.
Management may be able to control the timing of development expenses in part by
speeding up or slowing down marketing development and distribution activities.
(b) FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the Company's
financial condition and results of operations. Detailed information is contained
in the financials included with this document. This section contains
forward-looking statements that involve risk and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all forward-looking statements wherever they appear in this document.
Since inception, the Company has funded its capital requirements by
financing activities, substantially through the sale of its equity securities.
The Company anticipates that revenues generated could be sufficient to fund the
Company's operations over the next 12 months, dependant upon the success of new
product initiatives.
The Company's products and services were launched in September 1999 and
with the limited history and recent personnel restructuring, it is difficult to
forecast future growth sales. Sales of Rompus' products have been moderate to
date, with a steady number of proposals and activity related to sales
opportunities currently being negotiated. Additionally, Rompus continues to
explore different avenues of new product development.
The Company has recently undertaken restructuring in order to reduce
personnel and infrastructure costs, while introducing new products and seeking
additional financing. The Company's restructuring includes the promotion of
Philip Butterfield to the position of President and Jeff Popham to the position
of CEO. Mr. Butterfield and Mr. Popham have been with the Company since its
inception and are responsible for the development of the proprietary product.
The Company believes the focus on new product development and expansion of sales
is deeply rooted in the Company's extensive creative abilities.
Sales expectations remain promising with forecasted revenues to August 2001
currently being readjusted to reflect the Company's more focused and streamlined
approach.
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ROMPUS INTERACTIVE CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
Three Month Period
ENDED FEBRUARY 28
----------------------------
2001 2000
--------- --------
Sales $ 165,210 $ 165,739
Cost of sales 229,996 94,873
------------ ------------
Gross margin (64,786) 70,866
------------- ------------
Expenses
Selling, general and administrative 184,730 653,930
Depreciation and amortization 19,637 8,769
Financing 3,244 --
Foreign exchange loss (gain) (2,275) 42,861
------------ ------------
205,336 705,560
------------ ------------
Loss before other income (270,122) (634,694)
Other income 191 6,585
------------ ------------
Net loss $ (269,931) $ (628,109)
============ ============
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Net loss per share, basic
and diluted (Note 1) $ (0.03) $ (0.08)
============ ============
Weighted average shares outstanding,
basic and diluted 7,848,148 7,601,573
============ ============
See accompanying notes to the condensed consolidated financial statements.
1
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ROMPUS INTERACTIVE CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
Six Month Period
ENDED FEBRUARY 28
----------------------------
2001 2000
--------- --------
Sales $ 730,838 $ 304,920
Cost of sales 642,986 164,309
------------- ------------
Gross margin 87,852 140,611
------------- ------------
Expenses
Selling, general and administrative 608,164 1,186,578
Depreciation and amortization 35,588 12,534
Compensation and professional
services (Note 2) -- 2,468,000
Financing 6,569 --
Foreign exchange loss (516) 43,806
------------- ------------
649,805 3,710,918
------------- ------------
Loss before other income (561,953) (3,570,307)
Other income 383 26,205
------------- ------------
Net loss $ (561,570) $ (3,544,102)
============= ============
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Net loss per share, basic
and diluted (Note 1) $ (0.07) $ (0.47)
============ ============
Weighted average shares outstanding,
basic and diluted 7,848,148 7,601,573
============ ============
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See accompanying notes to the condensed consolidated financial statements.
2
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ROMPUS INTERACTIVE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Expressed in U.S. Dollars)
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FEBRUARY 28 August 31
2001 2000
--------- --------
ASSETS
Current
Cash $ 48,543 $ 258,038
Accounts receivable (net of allowance -
$24,949, August 2000 - $12,263) 153,126 548,072
Inventory 25,630 30,438
Prepaids 13,703 13,444
------------- -----------
241,002 849,992
Capital assets 143,642 101,327
Other assets 25,756 22,907
------------- -----------
$ 410,400 $ 974,226
============= ============
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LIABILITIES
Current
Accounts payable and accrued liabilities $ 290,982 $ 294,010
Due to related parties (Note 4) 160,593 166,390
------------- -----------
451,575 460,400
------------- -----------
SHAREHOLDERS' DEFICIENCY
Preferred stock (Note 3) 900 900
Common stock (Note 3) 910 910
Contributed surplus 8,841,760 8,835,191
Deficit (8,884,745) (8,323,175)
------------- -----------
(41,175) 513,826
------------- -----------
$ 410,400 $ 974,226
============= ===========
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See accompanying notes to the condensed consolidated financial statements.
3
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ROMPUS INTERACTIVE CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Expressed in U.S. Dollars)
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Six Months Ended
February 28
-----------------------------
2001 2000
--------- --------
Cash flows from (applied to)
OPERATING
Net loss $ (561,570) $ (3,544,102)
Accrued compensation and professional
services expense -- 2,468,000
Depreciation and amortization 35,588 12,534
Imputed interest 3,244 --
------------ ------------
(522,738) (1,063,568)
Changes in
Receivables 394,946 (212,475)
Inventory 4,808 (2,559)
Prepaid expenses (259) (199,319)
Accounts payable and accrued liabilities (3,027) (10,911)
Refundable investment tax credits -- 4,646
------------ ------------
(126,270) (1,484,186)
FINANCING
Decrease in subscription receivable -- 1,388,101
Advances from related parties (5,797) --
------------ ------------
(5,797) 1,388,101
------------ ------------
INVESTING
Purchase of other assets (3,940) (1,245)
Purchase of capital assets (76,703) (60,391)
Sale of capital assets 1,135 --
------------ ------------
(79,508) (61,636)
------------ ------------
Foreign currency translation adjustment 2,080 60,491
------------ ------------
Decrease in cash and cash equivalents
during the year (209,495) (97,230)
Cash and cash equivalents, beginning of period 258,038 494,614
------------ -------------
Cash and cash equivalents, end of period $ 48,543 $ 397,384
============ =============
See accompanying notes to the condensed consolidated financial statements.
4
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ROMPUS INTERACTIVE CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
February 28, 2001
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1. GENERAL
The unaudited condensed consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial statements
and footnotes thereto. For further information, refer to the consolidated
financial statements and related footnotes for the year ended August 31, 2000
included in the Company's Annual Report on Form 10-KSB.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Rompus and its
wholly owned subsidiary, Rompus CD-ROM Production Ltd. (Rompus-ON). Significant
inter-company transactions have been eliminated in consolidation.
INCOME TAXES
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
LOSS PER SHARE
The Company reports earnings per share in accordance with the provisions of SFAS
No. 128, EARNINGS PER SHARE. SFAS No. 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shares by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock.
On September 24, 1999 the Company issued 1,100,000 options under its stock
option plan (Note 2). These options were not included in the computation of
diluted earnings per share because to do so would be antidilutive.
5
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ROMPUS INTERACTIVE CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
February 28, 2001
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2. COMPENSATION AND PROFESSIONAL SERVICES EXPENSE AND STOCK OPTIONS
The Company has a stock option plan accounted for under SFAS No. 123 "Accounting
for Stock-Based Compensation". The plan allows the Company to grant options to
non-employees for consideration for services rendered up to an aggregate of
400,000 common shares. The options, which have a term expiring September 30,
2002, vest October 15, 1999. The exercise price for each option is $0.80 per
share. The standard contains a fair value based method for valuing stock-based
compensation that entities may use, and measures compensation cost at the grant
date based on the fair value of the award. Compensation is then recognized over
the service period, which is usually the vesting period.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants. Expected volatility of 0%; risk free interest rate
of 5.75% and 6.10%; and expected lives of 3 years. The estimated fair value of
each option was determined to be $2.32.
On September 24, 1999 the company issued 400,000 of these options. These options
were recorded as compensation and professional services expense of $2.32 per
option for a total of $928,000.
A summary of the status of the Company's option plans as of February 28, 2001
and changes during the period ending on that date is represented below:
Weighted Avg.
SHARES EXERCISE PRICE
------ --------------
Outstanding, beginning of period 1,100,000 $ 0.80
Granted --
Exercised --
---------- ------------
Outstanding, end of period 1,100,000 $ 0.80
==========
Options exercisable at period-end 1,100,000
==========
6
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ROMPUS INTERACTIVE CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
February 28, 2001
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2. COMPENSATION AND PROFESSIONAL SERVICES EXPENSE AND STOCK OPTIONS (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at February 28, 2001:
Range of Number Weighted Avg.
Exercise Oustanding Remaining Weighted Avg.
PRICES AND EXERCISABLE CONTRACTUAL LIFE EXERCISE PRICE
- -------- --------------- ---------------- --------------
$0.80 1,100,000 1.50 years $ 0.80
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3. CAPITAL STOCK
FEBRUARY 28 August 31
2001 2000
----------- ---------
Authorized
80,000,000 Common shares with a par value of $0.0001
20,000,000 Preferred shares with a par value of $0.0001
(of which 9,000,000 are Series A Special
Voting Preferred shares)
Issued
9,000,000 Series A Special Voting Preferred shares $ 900 $ 900
9,101,573 Common shares (August 31, 2000 - 9,101,573) 910 910
-------- --------
$ 1,810 $ 1,810
========= ========
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4. DUE TO RELATED PARTIES
FEBRUARY 28 August 31
2001 2000
----------- ---------
Due to shareholders $ 160,593 $ 166,909
=========== =========
The due to related parties are unsecured, non-interest bearing and have no fixed
terms of repayment.
7
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ROMPUS INTERACTIVE CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
February 28, 2001
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5. INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment.
The company's sales were distributed as follows:
Three Month Period
ENDED FEBRUARY 28
------------------------------
Canada $ 114,174(2000 - $80,963)
United States $ 51,036 (2000 - $83,176)
United Kingdom $ Nil (2000 - $Nil)
Puerto Rico $ Nil (2000 - $1,600)
Six Month Period
ENDED FEBRUARY 28
------------------------------
Canada $ 423,267(2000 - $201,297)
United States $ 305,064 (2000 - $102,023)
United Kingdom $ 2,507 (2000 - $Nil)
Puerto Rico $ Nil (2000 - $1,600)
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6. FISCAL 2000 FOURTH QUARTER ADJUSTMENTS
Compensation expense of $1,320,000 and selling, general and administrative
expenses of $173,674 included in previous quarters' financial statements were
reversed in the fourth quarter of fiscal 2000, with corresponding adjustments to
contributed surplus and accounts payable and accrued liabilities respectively.
These adjustments are reflected in the fiscal 2000 comparative numbers on the
statement of operations for the six month period ended February 28, 2001.
8