UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 000-23785
ACTFIT.COM INC.
(formerly Lasermedia Communications Corp.)
(Exact Name of Company as Specified in Its Charter)
ONTARIO, CANADA
(Jurisdiction of Incorporation or Organization)
11 CHARLOTTE STREET, TORONTO, ONTARIO, M5V 2H5
(Address of Principal Executive Office)
Securities registered or to be registered pursuant to
Section12(b) of the Act: None
Securities registered or to be registered pursuant
to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None
Number of outstanding shares of the issuer's common
stock as of December 31, 1999: 22,769,821
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark which financial statement item the
registrant has elected to follow:
Item 17 [ ] Item 18 [X]
TABLE OF CONTENTS
SECTION PAGE
EXCHANGE RATES OF THE CANADIAN DOLLAR..........................................2
PART I
Item 1. DESCRIPTION OF BUSINESS...............................................3
Item 2. DESCRIPTION OF PROPERTY..............................................13
Item 3. LEGAL PROCEEDINGS....................................................13
Item 4. CONTROL OF COMPANY...................................................13
Item 5. NATURE OF TRADING MARKET.............................................13
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS.................................................15
Item 7. TAXATION.............................................................16
Item 8. SELECTED FINANCIAL DATA..............................................18
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................19
Item 10. DIRECTORS AND EXECUTIVE OFFICERS.....................................24
Item 11. EXECUTIVE COMPENSATION...............................................25
Item 12. OPTIONS TO PURCHASE SECURITIES FROM COMPANY
OR SUBSIDIARIES..................................................26
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.......................28
PART II
Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED...........................29
PART III
Item 15. DEFAULTS UPON SENIOR SECURITIES......................................29
Item 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR
REGISTERED SECURITIES AND USE OF PROCEEDS........................29
PART IV
Item 17. FINANCIAL STATEMENTS.................................................29
Item 18. FINANCIAL STATEMENTS.................................................29
Item 19. FINANCIAL STATEMENTS AND EXHIBITS....................................29
1
This report on Form 20-F, including Item 1 ("Business") and Item 18
("Financial Statements"), contains forward looking statements regarding future
events or the future financial condition of ActFit.com Inc. and its subsidiaries
(the "Company") that involve certain risks and uncertainties discussed under
"Risk Factors" below. Actual events or the actual future results of the Company
may differ materially from any forward looking statement due to such risks and
uncertainties.
EXCHANGE RATES OF THE CANADIAN DOLLAR
Financial information in this annual report is expressed in Canadian
dollars, unless otherwise noted. References to "CDN$" or "$" are to Canadian
dollars. The following table sets forth, for the periods indicated, the high and
low exchange rates, the average of the month-end exchange rates and the
period-end exchange rate of the Canadian dollar in exchange for the United
States dollars, based upon the inverse of exchange rates reported by the Federal
Reserve Bank of New York at the noon buying rates in New York City for cable
transfers payable in the Canadian dollars as certified for customs purposes. On
June 30, 2000 the noon buying rate was CDN$1.00 = U.S.$0.6754
FISCAL YEAR ENDED AVERAGE HIGH LOW CLOSE
----------------- ------- ---- --- -----
12/31/99 $0.6730 $0.6935 $0.6462 $0.6928
12/31/98 $0.6741 0.7060 0.6484 0.6522
12/31/97 $0.7223 0.7424 0.6991 0.6991
12/31/96 $0.7334 0.7557 0.7209 0.7297
12/31/95 $0.7285 0.7533 0.7009 0.7331
12/31/94 $0.7321 0.7591 0.7198 0.7198
12/31/93 $0.7751 0.8046 0.7439 0.7544
12/31/92 $0.8272 0.8757 0.7661 0.7865
2
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
ActFit.com Inc. ("the Company") (formerly LaserMedia Communications Corp.
("LaserMedia")) began 1999 as a company which produced the Active line of
interactive fitness training CD-ROMs (Active Trainer, Active Abs, Active Buns &
Thighs) and operated its website www.activetrainer.com which supported these
products.
On August 5, 1999 the Company filed articles of amendment to change its
name to Actfit.com Inc.
On August 19, 1999, the Company, which as LaserMedia had traded under
the ticker symbol LMCD on the Canadian Dealing Network Inc. ("CDN") and under
the ticker symbol LZMCF on the NASD Over-the-counter Bulletin Board ("OTC-BB"),
started trading on the CDN in U.S. dollars and under the new symbol ACTF.U, and
on the OTC-BB under the new symbol ACTFF.
Upon assuming leadership of the Company in late 1998, present management
had begun reorganizing and re-focusing the Company in order to take advantage of
emerging business opportunities on the Internet.
An Advisory Committee was formed of professionals from the health, fitness
and technology sectors. Now chaired by Mr. Robert Lifton, the Advisory Committee
has since attracted a number of notable senior executives from the medical,
entertainment, sports and financial sectors. A complete list can be found on the
ActFit.com website in the Corporate Information section.
In 1999, its first year as an Internet company, ActFit.com Inc. achieved a
series of successes:
o January 1999: Launched the Web's first interactive Virtual Health Club and
deployed a traffic building strategy. Within nine months, the Company had
built one of the largest and fastest-growing focussed-market network of web
sites of its kind on the Internet. At the end of 1999, the ActFit.com
network consisted of more than 360 health, fitness and sports-related
alliance sites, with audited traffic in excess of 3.1 million page views
per month.
o August 1999: Launched Active Trainer Online (ATO), the online version of
the Company's Active Trainer CD-ROM. In this remarkable technical
achievement, ATO became the first CD-ROM program to be successfully adapted
to delivery over the Internet. ActFit.com Inc. also joined a select group
of companies such as Cisco Systems and Sun Microsystems in the pioneering
of so-called "thin-client" applications, that is, programs delivered over
the web.
3
o September 1999: Launched Body of Knowledge, the most complete electronic
encyclopedia of weight-training exercises currently available. Designed
expressly for the fitness club user, this program is currently marketed to
2 million fitness club members across the U.S., through an alliance with
ClubSite Internet Network Inc., which creates and manages web sites for
more than 2000 health clubs throughout North America.
General Information
The headquarters and registered office of the Company are located in
Canada at 11 Charlotte Street, Toronto, Ontario M5V 2H5. The telephone number is
(416) 977-2001. Inquiries should be directed to Richard Hue, the Company's Chief
Executive Officer. The registrar and co-transfer agent for the Company is Equity
Transfer Services Inc., 120 Adelaide Street West, Suite 420, Toronto, Ontario
M5H 4C3, Tel: (416) 361-0152. The other co-transfer agent is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004, Tel: (212) 509-4000.
Brief History
The Company was incorporated under the Business Corporations Act
(Ontario) on April 20, 1964 under the name Benvan Mines Limited. The company
underwent a number of name changes between 1964 and 1967.
On June 27, 1997, the name of the Company was changed to LaserMedia
Communications Corp. ("LaserMedia") as part of a transaction in which the
Company acquired all the issued and outstanding securities of LaserMedia Inc.
LaserMedia Inc.'s principal business was the production and distribution of
multimedia interactive consumer software products in the entertainment, home
education and personal fitness categories. The securities issued by the Company
in exchange for the issued and outstanding securities of Lasermedia Inc. were
valued at CDN$8,300,000. The value of the Company was determined by an
unaffiliated business valuation and litigation support company. The Company, at
that time had one other wholly owned subsidiary, Verisim, Inc., which developed
Internet software.
In 1997 the Company determined the need to move its business activities
away from diffuse and divergent multimedia activities toward the more focused
core business of the delivery of health and fitness information via interactive
electronic media and made a series of acquisitions. The Company also started to
develop virtual reality products and services.
In fourth quarter of 1998 the Company announced its intention to launch
"ActFit.com", a website which the Company believed would be the first virtual
health and fitness club, incorporating a high level of graphic realism and
interactivity on the Internet. ActFit.com was launched two months later, in
January 1999.
4
At the annual and special meeting of shareholders in July, 1999, the
shareholders of the Company approved a resolution to change the Company's name
from Lasermedia Communications Corp. to Actfit.com Inc. The name change took
effect August 5, 1999.
The Market
The Active Lifestyle marketplace (health, fitness and sports) is a
diverse market in a rapidly growing area of consumer interest. It is reported to
be worth $80 billion in annual sales and consist of more than seventeen million
enthusiasts in the United States alone. There are tens of thousands of suppliers
to serve them. It is a market that lends itself to consolidation, as
organizations seek acquisition, merger, co-branding and cross-promotional
opportunities. The Company believes it is a market with no single dominant
brand.
The Company hopes to make "ActFit.com" become the dominant brand by
being the leading entry point on the Internet for health and fitness
information, product and services.
ActFit.com Website
The Company markets its "ActFit.com" website as the central source for
Active Lifestyle information on the Internet. The Company provides advertisers
and sponsors targeted co-branding and cross-promotional opportunities through
its "channels" or topic areas, each of which attracts a rapidly growing core of
loyal users.
The website was launched in January 1999, and experienced rapid growth
in traffic almost immediately. By the end of 1999 page views were running at 3.1
million per month, as audited by ABC Interactive.
As the Company's strategy of developing its network through targeted
web hosting gains momentum, the number of page views continues to climb and the
potential value of advertising and sponsorship opportunities offered on
"ActFit.com" increases. To further the Company's goals, it has been negotiating
alliances with health, fitness and sport web sites and publications around the
world. This network strategy has the potential of substantially increasing the
number of page views, as well as increasing the Company's exposure on the
Internet and conventional media outlets. The "ActFit.com" website sells
advertising on behalf of its network members and shares in these revenues.
The ActFit.com website integrates innovative, interactive content in a
media-rich environment including such features as 3-D graphics, chat rooms,
online training advice, weekly fitness e-zine, workout generators,
brand-extending free email yourname@ActFit.com, full-motion video exercise
demonstrations, full-motion video celebrity workouts and a dynamic database of
authoritative health and fitness information. ActFit.com's video library is
currently the largest fitness-related video library on the Internet.
5
Interactive Content & Applications
The Company has made a commitment to develop the Internet technology
expected to emerge from the deployment of broadband networks. As an early
entrant in this medium, the Company expects to gain unique expertise in this
field and developing new techniques and applications. The Company through its
"ActFit.com" website will also maintain a low-bandwidth presence on the
Internet. Consumers using a modem on a regular telephone line can access
"ActFit.com's" content, advertisers and sponsors through our weekly electronic
magazine, FitWeek.
The Company will seek a competitive advantage as an early entrant in
the broadband spectrum with the "ActFit.com" site. The Company believes it can
develop and produce interactive advertising models which are effective and
informative alternatives to the static banner advertising and annoying pop-up
ads currently being offered on the Internet. It is currently testing prototypes
of interactive advertising media that can be accessed by consumers with modems
and regular phone lines as well as high speed Internet connections.
The media-rich virtual environments of ActFit.com were developed and
produced using Macromedia Flash technology, the same technology that Microsoft's
Web TV uses for interactive television. ActFit.com is one of the first websites
that can create interactive Internet advertising that can be converted to
interactive television. With this pioneering expertise, "ActFit.com" will be
competitively positioned to offer its clients and associates an opportunity to
be among the first to offer advertising content which will appear on interactive
television, which many consider to be the future evolution of all television
advertising.
Brand Management & The Development of The ActFit.com Franchise
By building a highly-visible brand and establishing a solid credibility
in a focused market, the Company looks to expand its business interests to
include other potentially profitable activities which could be operated as
proprietary ventures or licensed and managed by third parties.
The Company may look to offer for sale such products and services as:
apparel, vitamins and supplements, books, videotapes, CD-ROMS, DVD-ROMS and
television programming as well as provide the management of health and fitness
events such as competitions, conferences, trade shows, lecture series and
on-line travel services offering specialized fitness packages.
All of these initiatives introduce new sponsorship, advertising and
product placement opportunities for our media-buying customers that could lead
to many unique co-branding and cross-promotional vehicles.
6
Potential Sources of Revenue
The Company will seek to generate revenues from the following sources:
o media sales of advertising space;
o fees for the production of interactive advertising;
o sponsorship fees for ActFit.com rooms, features and webcast events;
o transaction fees and commissions from Shopping Center product sales;
o sales of downloadable products under the "ActFit.com" brand;
o memberships fees for customized services;
o subscription fees to pay-per-view events;
o web hosting and site management fees from health and fitness
organizations and publications;
o commission and/or share of advertising revenue from media sales on
hosted sites; and o sales of research data and analysis of
consumer information and trends for the health and fitness industry.
Growth Strategy
The Company has adopted an incremental growth strategy to be achieved
through the targeting of specialized markets for its proprietary interactive
fitness products.
The identification and cultivation of these markets affords ActFit.com
the opportunity to sell to highly focused groups of prime prospects with a high
degree of efficiency and little wastage of marketing dollars. Through its
unequalled reach, the Internet allows re-purposed products to penetrate these
markets anywhere in the world.
ActFit.com has identified three such markets:
(i) The enormous participatory sports market. In 2000 ActFit.com
plans to use its depth of knowledge in the creation of
interactive fitness programs to tap the $40 billion participatory
sports market. The Company, capitalizing on the loyal user base
captured by its 16 online "channels", will begin to serve
highly-focused communities of sports enthusiasts with
conditioning, nutrition and sports medicine programs specifically
tailored to their needs. Initially all of the most popular sports
will be covered, including ice hockey, baseball, football,
soccer, and basketball, with skiing, snowboarding, running and
other activities to follow. Revenue will accrue from subscription
to personalized conditioning programs, from e-commerce of related
goods, and from leveraging of databased user information;
(ii) The 30 million health club members in the United States. Through
an alliance with ClubSite Internet Network Inc. ("ClubSite"),
which builds customized websites for both independent and chain
health clubs, ActFit.com will be able to electronically market
its online fitness programs directly to the members of these
clubs. The programs will be paid for and delivered
electronically, taking advantage of the efficiency and broad
reach of the Internet. At year end 1999, ClubSite managed
customized sites for over 2000 clubs, with a total of 5000
expected to be online by the end of 2000. The ClubSite alliance
affords ActFit.com access to a lucrative and burgeoning customer
base at a fraction of the cost of traditional media advertising
and publicity campaigns; and
7
(iii) The employees of Fortune 500 companies. The Company is entering
into a strategic alliance with Health Systems Group Inc. ("HSG"),
one of Canada's largest developers and managers of employee
fitness and health programs in the corporate sector. HSG helps
Fortune 500-level clients, including Ford Motor Company of
Canada, Imperial Oil Limited, Procter and Gamble, Amex Canada,
Rogers AT&T, and 20 other major companies, reduce the enormous
cost of employee absenteeism, short- and long-term disability,
and Workers Compensation Board claims. This acquisition will
allow the Company to deliver its fitness, nutrition and wellness
programs to a prime audience in a rapidly expanding market.
Competition
The Active Lifestyle market is characterized by intense competition and
by rapidly changing technology, evolving industry standards and frequent new
product and service introductions. The Company's competitors range from small
companies with limited resources to large companies with substantially greater
financial, technical and marketing resources than those of the Company.
Management believes that competition will come from existing businesses
entering the Internet marketplace from traditional media such as magazines and
television. However, the Company has a significant advantage in that from its
beginning, it specialized in the creation of interactive fitness programs for
the electronic media and possesses a far greater inventory of these materials
than late entries into the field.
Only a small percentage of products or services introduced in this
marketplace achieve any degree of sustained market acceptance. The principal
competitive factors guiding the success of an Internet-based company in this or
any marketplace include perceived credibility, reliability, brand recognition,
ease and speed of online products, technological competency, marketing strategy,
and factors relating to rapidly developing trends. The Company believes that it
can compete effectively in these areas but there is no assurance that it will be
able to do so successfully.
Trademarks, Logos and Tradenames
The Company relies upon copyright, trade secret and contract law to
protect its proprietary technology in Canada, the United States and in
international markets. Such copyright protection prohibits the reproduction of
exact language and code of the Company's products and software programs but does
not effectively protect the Company against selective reproduction of certain
aspects of any product or program. The Company utilizes confidentiality and
non-competition provisions in its employee and consultant agreements as well as
with various third parties with whom it deals in order to restrict the use of
its proprietary technology. There are no assurances as to the extent to which
such agreements will be enforceable or be able to protect the interests of the
Company.
8
Research and Development
The Company has focused on developing "virtual reality products" in the
years prior to 1999, including the Active VR and the Virtual Health Club
products. The last fiscal year saw the successful launch of the Company's
website at www.ActFit.com; a comprehensive interactive health and fitness
website.
The Company plans to focus its research and development efforts on
expansion of this website and building alliances to exploit this website to the
fullest.
Government Regulation of Environment
There are no significant rules or regulations in connection with
governmental regulation of the environment applicable to the Company that would
have a material effect on capital expenditures, earnings or its competitive
position. Employees
At June 30, 2000, the Company employed 24 individuals.
Seasonal Variation
The Company has not experienced significant effects of seasonality to
date; however, the operating results of many Internet companies reflects
seasonal fluctuations. For example, many Internet companies earn their highest
revenue and profits in the calendar year-end holiday season and a seasonal low
in revenue and profits in the quarter ending in June. There can be no assurance
that the Company will not experience such trends in the future.
Risk Factors
The following are the principal risk factors regarding an investment in
the Company:
(a) Limited history of operations and profitability
The Company has a limited operating history and is presently
unprofitable. The Company's prospects must be considered in light of
the risks, expenses, and difficulties frequently encountered by
companies in their early stages of development, particularly companies
in a new and evolving market such as website development. There can be
no assurance that any of the Company's business strategies will be
successful or that the Company's revenue growth will continue on an
annual or quarterly basis or ever become profitable.
9
(b) Potential fluctuations in quarterly operating results
The Company expects that its future operating results will fluctuate
significantly as a result of numerous factors, including the demand for
the Company's information, consumer products and/or customized
services. The Company's ability to develop new products, research and
development activities, the emergence of new industry standards, the
timing of customer orders, the mix of information and services
available, competition, the mix of distribution channels employed, the
evolving and unpredictable nature of the markets for the Company's
products and multimedia software, and general economic conditions.
The Company has not experienced significant effects of seasonality to
date; however, the operating results of many information technology
companies reflect seasonable fluctuations, and there can be no
assurance that the Company will not experience such trends in the
future. As a result of the foregoing factors, the Company's operating
results and the Company's stock price may be subject to volatility.
(c) Rapid technology change
The information technology industry is undergoing rapid changes,
including evolving industry standards, frequent new product
introduction, and changes in consumer requirements and preferences. The
Company's success will depend upon, among other things, its ability to
achieve and maintain technological and quality leadership by
anticipating and developing new products and services. There can be no
assurance that the Company will respond effectively to market or
technological changes, or compete successfully in the future. If the
Company is unable to meet the challenge of a rapidly evolving industry
in a timely manner, this inability could have a material adverse effect
on the Company's operations.
(d) Risks associated with new product/services development and timely
introduction of new and enhanced products/services
The Company's future success will depend to a substantial degree upon
its ability to enhance its existing products and services and to
develop and introduce, on a timely and cost-effective basis, new
products, services and features that meet customer demands and emerging
and evolving industry standards. The Company budgets amounts to expend
for research and development based on planned product introductions and
enhancements; however, actual expenditures may significantly differ
from budgeted expenditures. Inherent in the product development process
is a number of risks. The development of new online products and
services is a complex and uncertain process requiring high levels of
innovation, as well as accurate anticipation of technological and
market trends.
10
There can be no assurance that the Company will successfully develop,
introduce or manage the transition to new products and services. The
Company may experience delays in the introduction of its products due
to factors internal and external to the Company. Any delays in the
introduction of new or enhanced products or the inability of such
products to gain market acceptance could adversely affect the Company's
operating results, particularly on a quarterly basis.
(e) Competition
All aspects of the Company's business are highly competitive. Although
management believes that it has certain proprietary advantages over its
competitors, some competitors have greater financial, technical and
marketing resources, have established greater name recognition in the
marketplace, and have larger customer bases and distribution systems.
There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors.
The Company believes that its ability to compete successfully depends
upon a number of factors, including, market presence, access to
capital, the pricing policies of its competitors, and the timing of
introductions of new products and services by the Company and its
competitors. There can be no assurances that the Company will have the
resources required to respond effectively to market or technological
changes or to compete successfully with current or future competitors
or that competitive pressures faced by the Company will not materially
and adversely affect its business, operating results and/or financial
position.
(f) Risks associated with Internet Distribution
While the number of businesses utilizing the Internet as a vehicle of
product marketing has grown rapidly, it is not known whether this
market will continue to develop such that sufficient demand for the
Company's services will emerge and become sustainable. Similarly, it is
not known whether individuals will utilize the Internet to any
significant degree as a means of purchasing goods and services or
effecting payment. The adoption of the Internet for commerce,
particularly by those individuals and enterprises that historically
have relied upon traditional means of commerce, will require a broad
acceptance of new methods of conducting business and exchanging
information. Moreover, the security and privacy concerns of existing
and potential users of the Company's services, as well as concerns
related to confidentiality, may inhibit the growth of Internet commerce
generally. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary
infrastructure, such as adequate capacity, a reliable network backbone
or timely development of complementary products, such as high speed
modems. There can be no assurance that commerce over the Internet will
become widespread or that a market for the Company's products will
emerge over this medium.
11
(g) Proprietary rights and risk of infringement
The Company relies on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors
such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements and name
recognition are essential to establishing and maintaining a
technological leadership position. The Company seeks to protect its
software, documentation and other written materials under trade secret
and copyright laws that afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products and services is
difficult, and while the Company is unable to determine the extent to
which piracy of its multimedia products exists, piracy can be expected
to be a persistent problem. The Company distributes its multimedia
products in the United States and Canada. There can be no assurance
that the Company will not distribute its multimedia products in the
future to countries where the enforcement of proprietary rights may be
uncertain.
(h) Dividends
It is the current policy of the Company's management to retain any
earnings to finance the operations and expansion of the Company's
business and payment of dividends on the common shares is unlikely in
the foreseeable future.
(i) Potential volatility of stock price
The trading price of the common shares is likely to be highly volatile
and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results,
announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect
to the copyrights or proprietary rights, conditions and trends in the
multimedia industry, adoption of new accounting standards affecting the
multimedia industry, changes in financial estimates by securities
analysts, general market conditions and other factors. In addition, the
stock market has from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices
for the common stocks of technology companies. The Company's common
shares are being traded in Canada on the Canadian Dealing Network Inc.
Over-the-counter market and in the United States on the NASD
Over-the-counter Bulletin Board. The public float is approximately
6,000,000 common shares. Broad market fluctuations may materially
adversely affect the market price of the common shares.
12
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal product research and development, marketing,
sales, customer support, administrative, and warehousing activities are
conducted from an approximately 10,000 square feet facility located at 11
Charlotte Street, Toronto, Ontario, M5V 2H5. This facility is leased to the
Company by an unaffiliated third party for a term of five years expiring April
16, 2002. The Company pays rent of $85,000 per annum for such facility.
Management believes that should it be needed, suitable additional space
will be available to accommodate expansion of the Company's operations on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. CONTROL OF COMPANY
As of June 30, 2000, there were no stockholders known by the Company to
be beneficial owners of more than 10% of the outstanding common stock of the
Company. All of the Company's officers and directors, taken as a group (three
persons), own less than 2% of the Company's outstanding common stock as of June
30, 2000.
As far as known to the Company, the Company is not directly or
indirectly owned or controlled by another corporation or by any governmental
authority. The Company does not know of any arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 5. NATURE OF TRADING MARKET
On August 14, 1997 the common shares of the Company commenced trading
and quotation on the Canadian Dealing Network Inc. ("CDN"), which is the
over-the-counter market in Canada. The common shares traded on CDN under the
ticker symbol "LMCD" until August 19, 1999 when due to a change in the Company's
name it changed its ticker symbol to ACTF.U. On August 19, 1999 the Company also
began trading and quotation in US dollars on CDN.
On October 20, 1998 the common shares of the Company began trading on
the NASD Over-the-counter Bulletin Board ("OTC-BB") under the trading symbol
"LZMCF". On August 19, 1999 the Company changed its ticker symbol and continued
trading on the OTC-BB under the new ticker symbol ACTFF.
The following tables presents the high and low trading values per
quarter of the common stock of the Company from the date the Company's common
shares commenced trading on each of CDN and the OTC-BB, through to June 30,
2000.
13
TRADING MARKET TABLE
Canadian Stock Trading Analysis (In Canadian Dollars unless otherwise indicated)
FISCAL QUARTER HIGH LOW
-------------- ---- ---
1997
----
August 14 - September 30, 1997 $1.70 $1.45
October 1 - December 31, 1997 $1.75 $0.80
1998
----
January 1 - March 31, 1998 $1.85 $0.75
April 1 - June 30, 1998 $2.05 $0.45
July 1 - September 30, 1998 $0.55 $0.25
October 1 - December 31, 1998 $0.40 $0.10
1999
----
January 1 - March 31, 1999 $0.85 $0.10
April 1 - June 30, 1999 $2.22 $0.47
July 1 - September 30, 1999 $3.10 $1.30
*July 1 - September 30, 1999 U.S. $2.12 U.S. $1.07
October 1 - December 31, 1999 U.S. $1.15 U.S. $0.43
2000
----
January 1 - March 31, 2000 U.S. $0.87 U.S. $0.31
April 1 - June 30, 2000 U.S. $0.70 U.S. $0.27
*Began trading in U.S. Dollars on the Canadian Dealing Network on August 19,1999
U.S. Stock Trading Analysis (In U.S. Dollars)
FISCAL QUARTER HIGH LOW
-------------- ---- ---
1998
----
October 20 - December 31, 1998 $0.28 $0.05
1999
----
January 1 - March 31, 1999 $0.75 $0.07
April 1 - June 30, 1999 $1.52 $0.30
July 1 - September 30, 1999 $2.12 $1.07
October 1 -December 31, 1999 $1.18 $0.40
2000
----
January 1 - March 31, 000 $0.88 $0.30
April 1 - June 30, 2000 $0.75 $0.27
The Company has paid no cash dividends on the common shares and does
not intend to do so in the foreseeable future. Rather, the Company intends to
retain its earnings, if any, to provide capital for product development and
company growth.
14
The authorized capital of the Company consists of an unlimited number
of common shares and 2,000,000 voting preference shares. The number of
preference shares issuable by the Company at any one time is limited to 500,000.
The Company believes that there are a substantial number of
shareholders who are residents of the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada that
restrict the export or import of capital, including, but not limited to, foreign
exchange controls, or that affect the remittance of dividends, interest or other
payments to nonresident holders of the Company's common stock, other than
withholding tax requirements.
There is no limitation imposed by Canadian law or by the Company's
bylaws or other constituent documents of the Company on the right of nonresident
or foreign owners to hold or vote shares of common stock, other than as provided
in the Investment Canada Act (Canada). The following summarizes the principal
features of the Investment Canada Act.
The Investment Canada Act requires certain "non-Canadian" (as defined
in the Investment Canada Act) individuals, governments, corporations and other
entities who wish to acquire control of a "Canadian business" (as defined in the
Investment Canada Act) to file either a notification or an application for
review with the Director of Investments appointed under the Investment Canada
Act. The Investment Canada Act requires that in certain cases an acquisition of
control of a Canadian business by a "non-Canadian" must be reviewed and approved
by the Minister responsible for the Investment Canada Act on the basis that the
Minister is satisfied that the acquisition is "likely to be of net benefit to
Canada", having regard to criteria set forth in the Investment Canada Act.
With respect to acquisitions of voting shares, only those acquisitions
of voting shares of a corporation that constitute acquisitions of control of
such corporation are reviewable under the Investment Canada Act. The Investment
Canada Act provides detailed rules for the determination of whether control has
been acquired and, pursuant to those rules, the acquisition of one-third or more
of the voting shares of a corporation may, in some circumstances, be considered
to constitute an acquisition of control. Certain reviewable acquisitions of
control may not be implemented before being approved by the Minister responsible
for the Investment Canada Act. If the Minister does not ultimately approve a
reviewable acquisition which has been completed, the non-Canadian person or
entity may be required, among other things, to divest itself of control of the
acquired Canadian business. Failure to comply with the review provisions of the
Investment Canada Act could result in, among other things, a court order
directing the disposition of assets or shares.
15
ITEM 7. TAXATION
The following summary of the material Canadian federal income tax
considerations generally applicable in respect of the common shares reflects the
Company's opinion. The tax consequences to any particular holder of common
shares will vary according to the status of that holder as an individual, trust,
corporation or member of a partnership, the jurisdiction in which that holder is
subject to taxation, the place where that holder is resident and, generally,
according to that holder's particular circumstances. This summary is applicable
only to holders who are resident in the United States, have never been resident
in Canada, deal at arm's-length with the Company, hold their common shares as
capital property and who will not use or hold the common shares in carrying on
business in Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is an issuer that carries on business in
Canada and elsewhere.
This summary is based upon the provisions of the Income Tax Act
(Canada) and the regulations thereunder (collectively, the "Tax Act") and the
Canada-United States Tax Convention as amended by the Protocols thereto (the
"Tax Convention") and the current administrative practice of Canada Customs and
Revenue Agency, Excise and Taxation. This summary does not take into account
Canadian provincial income tax consequences or United States tax implications.
This summary is not exhaustive of all possible income tax consequences.
It is not intended as legal or tax advice to any particular holder of common
stock and should not be so construed. Each holder should consult his or her own
tax advisor with respect to the income tax consequences applicable to such
holder in his or her own particular circumstances.
North American Free Trade Agreement (Canada)
The Investment Canada Act was amended with the North American Free
Trade Agreement (NAFTA) to provide for special review thresholds for Americans
(including "American-controlled entities" as defined in the Investment Canada
Act). Under the Investment Canada Act, as amended, an investment in the
Company's common shares by an American would be reviewable only if it was an
investment to acquire control of the Company and the value of the assets of the
Company was equal to or greater than a specified amount (the "Review
Threshold"), which increases in stages. The Review Threshold is currently
CDN$150 million and remains at CDN$150 million in constant 1992 dollars
(calculated as prescribed in the Investment Canada Act) after 1992.
Disposition of Common Shares
If a non-resident were to dispose of common shares of the Company to
another Canadian corporation which deals or is deemed to deal on a non-arm's
length basis with the non-resident and which, immediately after the disposition,
is connected with the Company (i.e., which holds shares representing more than
10% of the voting power and more than 10% of the market value of all issued and
outstanding shares of the Company or if controlled by the other Canadian
corporation), the amount by which the fair market value of any consideration
(other than any shares of the purchaser corporation) exceeds the paid-up capital
of the common shares sold will be deemed to be taxable as a dividend paid by the
purchasing corporation, either immediately or eventually by means of a deduction
in computing the paid-up capital of the purchasing corporation, and subject to
withholding taxes as described below.
16
Under the Tax Act, a gain from the sale of common shares by a
non-resident will not be subject to Canadian tax, provided the shareholder
(and/or persons who do not deal at arm's length with the shareholder) have not
held a "substantial interest" in the Company (25% or more of the shares of any
class of the company's stock) at any time in the five years preceding the
disposition. Generally, the Tax Convention will exempt from Canadian taxation
any capital gain realized by a resident of the United States, provided that the
value of the common shares is not derived principally from real property
situated in Canada.
Dividends
In the case of any dividends paid to non-residents, the Canadian tax is
withheld by the Company, which remits only the net amount to the shareholder. By
virtue of Article X of the Tax Convention, the rate of tax on dividends paid to
residents of the United States is generally limited to 15% of the gross dividend
(or 5% in the case of certain corporate shareholders owning at least 10% of the
Company's voting shares). In the absence of the Tax Convention provisions, the
rate of Canadian withholding tax imposed on non-residents is 25% of the gross
dividend. Stock dividends received by non-residents from the Company are taxable
by Canada as ordinary dividends and therefore the withholding tax rates will be
applicable.
Where a holder disposes of common shares to the Company (unless the
Company acquired the common shares in the open market in the manner in which
shares would normally be purchased by any member of the public), this will
result in a deemed dividend to the U.S. holder equal to the amount by which the
consideration paid by the Company exceeds the paid-up capital of such stock. The
amount of such dividend will be subject to withholding tax as described above.
Capital Gains
A non-resident of Canada is not subject to tax under the Tax Act in
respect of a capital gain realized upon the disposition of a share of a class
that is listed on a prescribed stock exchange unless the share represents
"taxable Canadian property" to the holder thereof. A common share of the Company
will be taxable Canadian property to a non-resident holder if, at any time,
during the period of five years immediately preceding the disposition, the
non-resident holder, persons with whom the non-resident holder did not deal at
arm's length, or the non-resident holder and persons with whom he/she did not
deal at arm's length owned 25% or more of the issued shares of any class or
series of the Company. In the case of a non-resident holder to whom shares of
the Company represent taxable Canadian property and who is resident in the
United States, no Canadian tax will be payable on a capital gain realized on
such shares by reason of the Tax Convention unless the value of such shares is
derived principally from real property situated in Canada or the non-resident
holder previously held the shares while resident in Canada. The Company believes
that the value of its common shares is not derived from real property situated
inside Canada.
17
ITEM 8. SELECTED FINANCIAL DATA
The following table provides a summary of certain financial information
for fiscal years 1999, 1998, 1997, 1996 and 1995. Such selected financial data
have been derived from the Company's financial statements which were prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). Audited financial statements for the years ended December 31, 1998 and
1999 have included notes that highlight the differences in the financial
statements had they been prepared in accordance with generally accepted
accounting principles in the United States ("US GAAP"). Canadian GAAP is
different in some respects from US GAAP. For the financial years ended December
31, 1999 and 1998 the Company wrote off three items, being publishing rights,
goodwill and deferred development expenses as would have been required had the
Company prepared the financial statements in accordance with US GAAP. The
information presented should be read in conjunction with such consolidated
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
REVENUE $290,730 $584,259 $2,538,824 $383,154 $141,478
---------------- ----------------- --------------- ---------------- -------------
EXPENSES
General and administrative 2,267,957 1,998,349 1,117,539 102,530 -
Sales and Marketing 1,099,595 647,738 690,196 83,251 -
Amortization 177,634 268,955 124,673 7,841 -
Other 70,710 488,107
Interest 70,602 90,180 12,806 1,102 -
Product Cost 12,694 378,309 322,621 269,707 -
---------------- ----------------- --------------- ---------------- -------------
$3,699,192 $3,871,638 $2,267,835 $464,431 $153,380(1)
================ ================= =============== ================ =============
INCOME (LOSS) BEFORE UNDERNOTED ITEMS (3,408,462) (3,287,379) 270,989 (81,277) (11,912)
Write-off of Deferred Development Costs 418,879 69,196
18
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Write-off of Goodwill 93,461 373,448 - - -
Write-off of Publishing Rights 102,071 - - -
---------------- ----------------- --------------- ---------------- -------------
512,340 544,715 - - -
---------------- ----------------- --------------- ---------------- -------------
INCOME (LOSS) FOR THE YEAR $(3,920,802) $(3,832,094) 270,989 $(81,277) $(11,912)
================ ================= =============== ================ =============
BASIC EARNINGS (LOSS) PER SHARE $(0.20) $(0.29) $0.02 $(0.01) NIL
================ ================= =============== ================ =============
AVERAGE SHARES OUTSTANDING - BASIC 19,668,993 13,278,649 11,950,243 11,033,532 11,033,532
================ ================= =============== ================ =============
(1) The operating expenses for 1995 consist of $120,825 for cost of revenue,
$13,663 for general and administrative, and $18,902 for sales and marketing.
Note: The effect of the conversion of warrants and options would not have a
dilutive effect and therefore no diluted loss per share is disclosed.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
At the onset of fiscal year 1998, the Company's major activity was the
production, acquisition and publication of interactive health and fitness
multimedia software on CD ROM. The Company was also developing interactive
multi-player strategic on-line games and virtual experiences with health and
fitness and other themes, intended to provide an entry point into diverse
markets. The health and fitness on-line group was involved in the development of
a multimedia web site, a brand extension of its proprietary CD ROM product line,
Active Trainer, that would provide consumers with health and fitness
information, products and customized services via the Internet.
Over the course of 1998, substantial development costs and overhead
were incurred by the on-line group. Despite this substantial investment, the
availability of a marketable product appeared unlikely for some time. As the
technology was being developed to create products and services for consumers
outside of the Company's target market of health and fitness, management decided
to cease further development of these applications. The software codes and
engines remain proprietary to the Company and may have future marketability.
19
As the Company approached the third quarter of operations it became
apparent that its year-end sales projections of CD ROM products would not be
met. This was due to unforeseen demands from distributors and retailers to agree
to unreasonable return policies and payment of new marketing fees to secure
shelf space.
With sales prospects and profit margins compromised by the emergence of
a competitive retail environment for interactive products, management stepped up
plans to explore and create new sales channels. CD ROM products were shipped to
health and fitness clubs and specialized retailers. The Company also accelerated
plans to distribute products and services via the Internet.
The Company's focus turned away from the development of new CD ROM
products and on-line games and towards the creation of an interactive web site
from which it could promote and market proprietary and third-party products and
services while generating revenue from the sales of advertising. In addition,
the web site would provide the Company with an opportunity to create brand
extending on-line versions of its Active Trainer products through the
repurposing of these intellectual properties, thus reducing its reliance on
traditional sales channels.
On October 22, 1998, President Erik Schannen resigned as both an
officer and director of the Company in order to facilitate its movement away
from research and product development, which was Mr. Schannen's area of
expertise and professional interest. In order to meet its objective of becoming
a successful Internet-based media company serving the health and fitness market,
the Company named Mr. Richard Hue as chairman, CEO and director. Mr. Hue has
extensive experience working in the entertainment, media and information
technology industries. (see "Directors and Executive Officers").
Mr. Hue immediately restructured the Company and re-organized
operations to meet its objectives in the shortest possible time frame. The
Multimedia Studio group and the On-line Games group ceased operations. This
necessitated the termination and release of several employees and
sub-contractors who did not possess the skills necessary to meet the Company's
immediate needs.
An Advisory Board was named, comprised of respected professionals with
experience in business, operations, finance, technology, telecommunications and
health and fitness to guide the Company toward the implementation of its new
objectives.
In November 1998, a strategic alliance was struck between the Company
and Aludra Inc., a leading interactive software development company with
Internet and e-commerce expertise, for the creation of ActFit.com, which the
Company believes is the Internet's first virtual health and fitness club.
ActFit.com was designed to incorporate high quality interactive graphics and
sound comparable to content found on a multimedia CD ROM, which would allow the
Company to market advertising, product placement and sponsorship opportunities
never before offered on the Internet.
Within two months of the commencement of the project, a working version
of ActFit.com had been developed and delivered. Testing of the new site
commenced at the end of December 1998. ActFit.com was officially launched in
January 1999 and is now the core business activity of the Company.
20
By the end of the fiscal year 1998, the Company had been restructured
and reorganized. The activities of Multimedia Studio (graphic design) and
On-line Games (development of Internet applications) had ceased, and the
remaining two groups, Multimedia Software (development, marketing and sales of
CD ROM products), and Health and Fitness On-line (customer service for CD-ROM
products and development of new on-line multimedia products), were consolidated
and focused on the health and fitness market.
In January 1999 the Company, which had in November 1998 entered into a
strategic partnership with Aludra Inc., launched an interactive health and
fitness web site, www.actfit.com., The site was designed to incorporate high
quality interactive graphics and sound comparable to content found on a
multimedia CD-ROM, which would allow the Company to market advertising, product
placement and sponsorship opportunities never before offered on the Internet.
The ActFit.com Alliance Partners Program was created to develop online
communities of health, fitness and sports enthusiasts which provide the target
audience for advertisers and e-commerce. The Active Lifestyle Shopping Center
was brought online to provide an on-site e-commerce base for the sales of
fitness equipment, supplements, participatory sports paraphernalia, videos and
books.
The Company also began the adaptation of its Active Trainer CD-ROM to
delivery over the Internet. This project, designed to capitalize on the
economies of electronic delivery and the reach of the World Wide Web, was a
pioneering effort in the development of interactivity on the Web, being the
first CD-ROM program to be delivered online. In August 1999, Active Trainer
Online became available at www.activetrainer.com, as an application sold on a
subscription basis.
By the end of 1999 preliminary development had also been completed on
an interactive CD-ROM product designed especially for the fitness club market.
Body Of Knowledge Volume One: Weights in Motion is the only complete
encyclopedia of strength training exercises on CD-ROM. Through a strategic
partnership with ClubSite Internet Network Inc., which operates turnkey websites
for fitness clubs across the United States, this product will be marketed to
millions of club members who can purchase it directly over the Internet.
In exchange for promotional considerations in the desirable Los Angeles
market, the Company furnished website redesign services for the NASCAR L.A.
Street Race. It also designed and executed a website for Adonnics Inc., a
martial arts program, and provided consulting services to Tokens Fine Foods
Limited, a manufacturer of health snacks, in return for promotions.
In order to maximize revenue opportunities through targeted advertising
and e-commerce, as the year progressed the health and fitness website concept
was broadened to serve a wider range of markets. The Alliance Partners Program
had grown to encompass communities of sports enthusiasts, notably tennis,
soccer, baseball and hockey, and these communities, along with a dozen others,
were added to the "channels" served by the website. The "Active Lifestyle"
portal site was launched in October, 1999 at www.actfit.com.
21
To pursue other sources of revenue, the Company entered into several
affiliate programs with online companies, notably DocTalk Inc., a provider of
medical advice, and Internet Sports Network Inc., which runs interactive sports
games
The Company provided ongoing page layout services for 14 medical
journals published by B.C. Decker Inc., continuing a business relationship which
has existed since 1995. As well, the Company provided similar services to
Carswell Thomson Professional Publishing Inc. for its Payroll Manager
newsletter.
Accounting Principles
Even though the financial statements prepared for the fiscal years 1999
and 1998 were prepared in accordance with Canadian GAAP, notes to the financial
statements highlight the differences in the financial statements had they been
prepared in accordance with US GAAP. In 1999 and 1998 the Company also wrote off
publishing rights, goodwill and deferred development expenses as would be
required by US GAAP.
Results of Operations
Revenues
Revenue in 1999 was $290,730 compared with $584,260 in 1998 and
$2,538,824 in 1997. Revenue for the fiscal year ended December 1997 included an
amount of $1,950,000 for the sale by the Company of its Active Trainer family of
software. Thus revenue for 1997 without including the sale of software was
$588,824.
Revenue in 1999 was derived from $161,430 in sales of CD-ROM products,
and $129,300 in video productions and editing services. In 1998, CD ROM sales
were $584,487. In 1997 CD ROM sales were $588,824.
Operating Expenses
Product Cost. Product costs in 1999 were $12,694 decreasing
significantly from $378,309 in 1998 due to the write-off of product inventory in
1998. Product costs for 1997 were $238,334.
General and Administrative. Theincrease in general and administrative
expenses from $1,998,349 in 1998 to $2,267,957 in 1999 was primarily
attributable to the increase in labour and consulting expenses. General and
administrative expenses in 1997 were $1,255,018.
22
Sales and Marketing. The increase in sales and marketing expenses from
$649,738 in 1998 to $1,099,595 in 1999 was primarily due to the costs incurred
in the marketing of the Company's new activity, ActFit.com, to business
interests. The sales and marketing expense for 1997 was $690,196.
Operating Income (Loss)
During the fiscal years 1998 and 1999, the Company wrote off three
items, being publishing rights, goodwill and deferred development expenses
totaling $544,715 in 1998, and goodwill and deferred development expenses
totaling $512,340 in 1999. Even though the financial statements prepared for the
fiscal years 1999 and 1998 were prepared in accordance with Canadian GAAP, these
items would have been required to be written off under US GAAP.
Net Income (Loss)
The Company reported a net loss of $3,920,802 in 1999, compared to a
net loss of $3,832,094 in 1998 and a net income of $270,989 in 1997. The net
income in 1997 was due to the sale by the Company of its Active Trainer family
of software for $1,950,000. Excluding this transaction, the Company would have
incurred a loss of $1,679,011 during the fiscal year ended December 31, 1997.
Liquidity and Capital Resources
The Company's principal working capital needs are for the production,
carrying and marketing of products; the development and acquisition of new
products; and the maintenance and updating its Internet website.
The Company reported a cash balance of $42,599 at December 31, 1999
compared with $0 at December 31, 1998 and $725,171 on December 31, 1997.
Accounts payable and accrued liabilities increased to $981,341 on December 31,
1999 compared with $737,035 on December 31, 1998 due to restructuring and
reorganization of the Company and the rapid development and deployment of
ActFit.com in 1999. Accounts payable and accured liabilities were $430,072 on
December 31, 1997. During 1999, the Company's current portion of long-term debt
decreased from $232,049 to $104,859 and the Company's loans payable were reduced
from $884,004 in 1998 to $343,587. On December 31, 1997 the current portion of
long term debt was $77,806 and loans payable were $0.
During the fiscal year ended December 31, 1999, the Company received
$1,991,219 resulting from private placements for common shares of the Company
and an additional $872,950 resulting from the exercise of options and warrants
for common shares of the Company, for a total of $2,863,969.
23
The Company expects to meet its short-term liquidity needs using its
cash resources, revenue from product sales, and borrowings. The Company believes
that these sources of cash will be sufficient to meet its operating needs for at
least 12 months. The Company may undertake one or more capital formation
transactions, including the public offering or private placement of shares of
capital stock, to meet its long-term product development and acquisition goals.
There can be no assurance that funds will be available to the Company in
sufficient amounts to finance the growth of the business.
Year 2000
All of the Company's products, programs, services, and other computer
equipment are Year 2000 compliant.
Foreign Currency Strategy
The Company has not adopted and does not intend to adopt, a strategy to
hedge against fluctuations in foreign currency. However, the Company does
reserve the right to implement such a strategy in the future. The Company's
costs are generally paid in Canadian dollars. As the Canadian dollar is
depressed in comparison to the American dollar, the Company's costs are lower
than if such costs were paid in U.S. dollars.
Inflation
The Company has not experienced any significant inflationary cost
increases during the past four fiscal years.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of all directors and officers
of the Company and the year in which each person became a director of the
Company.
YEAR BECAME
NAME POSITION A DIRECTOR
---- -------- ----------
Richard Hue Chief Executive Officer, 1998
President and Director
Samuel C. Paul Chief Financial Officer, Treasurer, 1997
Secretary and Director
Allan Hardy Director 1998
24
The principal occupations, business or employment of each of the
proposed directors and their respective biographies are as follows:
RICHARD HUE - Chief Executive Officer, President and Director. Richard Hue is an
investment banker and entrepreneur with more than 17 years of management and
investment experience. As former President of RT Equity Inc., a merchant banking
firm, Mr. Hue has been responsible for overseeing the development of start-ups,
restructuring of business operations and expansions of private and public
companies, many in the technology sector. Mr. Hue's experience includes the
ownership and management of a portfolio of residential and commercial real
estate holdings. Educated in business and marketing at the University of Toronto
and UCLA (Los Angeles), Mr. Hue owned and operated a consulting firm and has
served as Director of several public companies.
SAMUEL C. PAUL - Chief Financial Officer, Secretary and Director. With more than
35 years of experience in financial management, Mr. Paul's advice and
experienced counsel are key elements in the design and implementation of the
Company's growth and expansion plans. Mr. Paul owned and operated a public and
auditing accounting practice for many years. He has held senior executive
positions in and served as Director of several public companies, including
American Entertainment Group. He is a graduate of McMaster University where he
earned a degree in Economics and Business and his C.A. designation.
ALLAN HARDY - Director. A financial consultant and advisor, Allan Hardy is
President of his own consulting firm in Toronto. During his career spanning 30
years, Mr. Hardy served in senior executive positions in the insurance industry
and for a number of those years was recognized as a top producer for Imperial
Life Financial.
The Company's by-laws provide for a Board of Directors consisting of
six (6) directors, but allows board actions as long as there are at least three
directors. Vacancies on the Board of Directors may be filled by board action
pending the election of directors at an annual or special meeting of the
stockholders. The Board of Directors does not anticipate appointing new
directors to fill the vacancies the foreseeable future.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
During the fiscal year ended December 31, 1999 the aggregate
remuneration paid to all officers of the Company as a group was approximately
$95,552.
The table below sets forth all annual and long term compensation for
services in all capacities to the Company and its subsidiary for the Company's
financial years ending December 31, 1999, and December 31, 1998, for the
president and for the chief financial officer (the "Named Executives") being the
only executive officers of the Company.
25
Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Other Annual Securities under
Principal Position Year Salary Bonus Compensation (1) Options Granted (2)
------------------ ---- ------ ----- ---------------- -------------------
Richard Hue 1998 NIL NIL $155 NIL
Chief Executive Officer and 1999 NIL NIL $3,160 1,200,000
President
Samuel C. Paul 1998 $6,500 NIL $215 NIL
Chief Financial Officer, 1999 $90,000(3) NIL $3,390 135,000
Secretary and Treasurer
(1) Represents Group Benefit Plan Premiums Paid by the Company.
(2) For the fiscal year ended December 31, 1999, 1,335,000 options were granted
to the Company's named executive officers.
(3) Paid by way of common shares of the Company.
Compensation to Directors
During the fiscal year ended December 31, 1999, the directors received
no fees for attending meetings of the board of directors, meetings of committees
of the board of directors which they attended or for the signing of any written
resolution of directors or documents on behalf of the Company. During the year
1999, each director was granted 60,000 options. As of June 27, 2000 the Company
granted 25,000 stock options to each of the 3 directors for the fiscal year
2000.
None of the current or former officers or directors of the Company or
any proposed nominee for election as a director or any associate thereof is
indebted to the Company or its subsidiaries. In addition, no benefits were paid,
and no benefits are proposed to be paid to any of the current or former
directors and officers of the Company or any proposed nominee for election as a
director of the Company or any associate thereof under any pension or retirement
plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM COMPANY
Amendment to the Stock Option Plan
On June 27, 1997, shareholders of the Company approved the adoption of
a stock option plan (the "Stock Option Plan") to encourage stock ownership by
directors, officers, employees, consultants and advisors of the Company, as well
as other persons who provide services to the Company who are primarily
responsible for the management and profitable growth of its business and to
advance the interests of the Company by providing incentives for significant
performance by such persons and to enable the Company to attract and retain
valued directors, officers and employees. Other than the Stock Option Plan, the
Company has no other share compensation arrangements.
26
At the 1999 annual shareholders' meeting, the shareholders of the
Company approved an amendment to the Stock Option Plan to:
(i) increase the maximum number of common shares issuable under the
Stock Option Plan to 11,000,000;
(ii) exceed the following thresholds:
(A) the number of shares reserved for issuance
pursuant to stock options granted to insiders
exceeding 10% of the outstanding issue;
(B) the issuance to insiders, within a one-year
period, of a number of shares exceeding 10% of
the outstanding issue; and
(C) insider's associates, within a one-year period,
of a number of shares exceeding 5%
of the outstanding issue; and
(iii) exceed the threshold limiting the number of shares reserved for
issuance to any one person pursuant to options to 5% of the
outstanding issuer
As of June 30, 2000 the Company had granted 10,573,444 options under
the Stock Option Plan of which 2,611,938 had been exercised for the purchase
common shares of the Company. The board of directors is proposing to increase
the maximum number of common shares issuable pursuant to the Stock Option Plan
at the next annual shareholders' meeting.
The chart below sets out the options currently reserved for issuance,
the options granted to June 30, 2000 and the number of options proposed to be
available for grants.
Reserved for Issuance under the Stock Option Plan 11,000,000
Options Granted to Date 10,573,444
Options Available to be Granted Prior to the Proposed Increase 426,556
Proposed Increase 7,000,000
Options Available to be Granted Following the Proposed Increase 7,426,556
The board of directors believes that it should have available 7,426,556
options to purchase common shares to meet anticipated needs and to provide for a
reasonable contingency. Therefore the board of directors believes that it would
be appropriate to increase the number of common shares reserved for issuance
under the stock option plan by 7,000,000. This would result in an increase in
the number of common shares reserved for issuance under the stock option plan
from 11,000,000 to 18,000,000. Taking into consideration the proposed increase,
the number of common shares reserved for issuance and outstanding unexercised
options will be approximately 64% of the issued and outstanding common shares of
the Company.
27
Executive Option Holders
As of June 30, 2000, officers, directors and senior management of the
Company had been granted a total of 2,690,000 options of which 362,500 have been
exercised.
Warrants
As of June 30, 2000 a total of 2,187,766 shares of common stock were
reserved for issuance upon exercise of warrants.
Each warrant entitles the holder, subject to the terms and conditions
set forth in the warrant certificate, to purchase from the Company one common
share of the Company at the applicable exercise price. The Company has five
series of warrants issued and outstanding, all of which feature the same terms
and conditions but have varying exercise prices and expiry dates. Some of the
warrants were issued issued in connection with the acquisition of all the issued
and outstanding securities of Lasermedia Inc.
No fractional shares shall be issued upon exercise of any warrants and
no payments or adjustments shall be made upon any exercise on account of any
cash dividends on the shares issued upon such exercise. If any fractional
interest in the shares would otherwise be deliverable upon the exercise of a
warrant, the Company shall, in lieu of delivering the fractional share therefor,
pay to the warrantholder an amount in cash equal to the fair market value of
such fractional interest.
The class, number of shares issuable upon exercise and the exercise
price of the warrants are subject to adjustment in the event of a merger or sale
of the Company into new warrants of the surviving company. If the Company is
unable to deliver shares to the warrantholder pursuant to the proper exercise of
a warrant, the Company may satisfy such obligations to the warrantholder
hereunder by paying to the warrantholder in cash the difference between the
exercise price of all unexercised warrants and the fair market value of the
shares to which the warrantholder would be entitled to upon exercise of all
unexercised warrants. The exercise price of the warrants is subject to
adjustment if and when the Company issues shares of common stock to its
stockholders at a price less than the fair market value.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Other than transactions carried out in the ordinary course of business
of the Company or any of its subsidiaries, none of the directors or executive
officers of the Company, a proposed management nominee for election as a
director of the Company, any member beneficially owning shares carrying more
than 10% of the voting rights attached to the shares of the Company nor an
associate or affiliate of any of the foregoing persons had since January 1, 1999
(being the commencement of the Company's last completed financial year) any
material interest, direct or indirect, in any transactions which materially
affected or would materially affect the Company or any of its subsidiaries.
28
PART II
-------
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
N/A
PART III
--------
ITEMS 15. DEFAULTS UPON SENIOR SECURITIES
The Company has not experienced any material default in the payment of
principal, interest, a sinking or purchase fund installment, or any other
material default not cured within 30 days, with respect to any indebtedness of
the Company exceeding five percent of the total assets of the Company.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY
FOR REGISTERED SECURITIES AND USE OF PROCEEDS
The constituent instruments of the Company defining the rights of the
holders of the registered securities have not been materially modified. In
addition, the rights evidenced by the registered securities have not been
materially limited or qualified by the issuance or modification of other classes
of securities.
PART IV
-------
ITEM 17. FINANCIAL STATEMENTS
The Company has chosen to provide the financial statements specified in
Item 18 in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS
Consolidated Financial Statements of
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Year ended December 31, 1999
Auditors' Report to The SHAREHOLDERS
We have audited the consolidated balance sheet of Actfit.Com Inc. (formerly
Lasermedia Communications Corp.) as at December 31, 1999 and the consolidated
statements of operations and deficit and cash flows for the year then ended.
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 in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and the results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States,
application of accounting policies generally accepted in the United States would
have affected the financial statements to the extent summarized in note 13 to
the consolidated financial statements.
The consolidated financial statements as of December 31, 1998 and 1997 and for
the years then ended were audited by another firm of chartered accountants who
expressed an opinion without reservation on those statements in their report
dated May 10, 1999.
[GRAPHIC OMITTED]
/s/KPMG LLP
- -----------
KPMG LLP
Chartered Accountants
Vaughan, Canada
January 28, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 2 to the financial
statements. Our report to the shareholders dated January 28, 2000, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
[GRAPHIC OMITTED]
/s/KPMG LLP
- -----------
KPMG LLP
Chartered Accountants
Vaughan, Canada
January 28, 2000
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Consolidated Balance Sheet
December 31, 1999 and 1998
- --------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 42,599 $ --
Accounts receivable 73,502 116,897
Investment tax credits recoverable 1,685 431,558
Prepaid expense and sundry assets 60,828 51,363
- --------------------------------------------------------------------------------------
178,614 599,818
Capital assets (note 4) 509,466 550,958
Deferred development costs (note 5) -- 418,879
Goodwill (net of accumulated amortization; 1998 - $7,577) -- 93,461
- --------------------------------------------------------------------------------------
$ 688,080 $ 1,663,116
- --------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ -- $ 79,731
Accounts payable and accrued liabilities 981,341 737,035
Loans payable (note 6) 343,587 884,004
Current portion of long-term debt (note 7) 104,859 232,049
- --------------------------------------------------------------------------------------
1,429,787 1,932,819
Long-term debt (note 7) 15,756 126,178
Shareholders' deficiency:
Capital stock (note 8) 6,817,633 3,258,413
Deficit (7,575,096) (3,654,294)
- --------------------------------------------------------------------------------------
(757,463) (395,881)
Future operations (note 2)
Commitments and contingencies (note 12)
- --------------------------------------------------------------------------------------
$ 688,080 $ 1,663,116
- --------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
On behalf of the Board:
By: /s/ Sam Paul
- ----------------
Sam Paul, Director
By: /s/ Richard Hue
- -------------------
Richard Hue, Director
F-1
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Consolidated Statement of Operations and Deficit
Year ended December 31, 1999, 1998 and 1997
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
Revenue $ 290,730 $ 584,259 $ 2,538,824
Expenses:
General and administrative 2,267,957 1,998,349 1,126,818
Sales and marketing 1,099,595 649,738 690,196
Amortization 177,634 266,955 115,394
Other 70,710 488,107 --
Interest 70,602 90,180 12,806
Product costs 12,694 378,309 322,621
- ---------------------------------------------------------------------------------------------------
3,699,192 3,871,638 2,267,835
- ---------------------------------------------------------------------------------------------------
Income (loss) before the undernoted items (3,408,462) (3,287,379) 270,989
Write-off of deferred development costs 418,879 69,196 --
Write-off of goodwill 93,461 373,448 --
Write-off of publishing rights -- 102,071 --
- ---------------------------------------------------------------------------------------------------
512,340 544,715 --
- ---------------------------------------------------------------------------------------------------
Income (loss) for the year (3,920,802) (3,832,094) 270,989
Retained earnings (deficit), beginning of year (3,654,294) 177,800 (93,189)
- ---------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $(7,575,096) $(3,654,294) $ 177,800
- ---------------------------------------------------------------------------------------------------
Income (loss) per common share $ (0.20) $ (0.29) $ 0.02
- ---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Consolidated Statement of Cash Flows
Year ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in):
Cash flows from operating activities:
Loss for the year $(3,920,802) $(3,832,094) $ 270,989
Items not involving cash:
Amortization of capital assets 177,634 196,306 66,109
Amortization of deferred development costs
and publishing rights -- 65,597 46,462
Amortization of goodwill -- 5,052 12,102
Write-off of deferred development costs 418,879 69,196 --
Write-off of goodwill 93,461 373,448 --
Write-off of publishing rights -- 102,071 --
Capital stock issued for services 389,695 140,503 --
Change in non-cash operating working
capital (note 10) 708,109 942,852 (725,713)
- ----------------------------------------------------------------------------------------------------------------
(2,133,024) (1,937,069) (330,051)
Cash flows from financing activities:
Increase (decrease) in long-term debt (237,612) 95,521 262,706
Decrease (Increase) in loans receivable -- 175,000 (175,000)
Issuance of notes payable 311,935 -- --
Increase (decrease) in loans payable (546,796) 836,630 (221,335)
Issuance of capital stock, net of issue costs 2,863,969 270,573 2,847,335
- ----------------------------------------------------------------------------------------------------------------
2,391,496 1,377,724 2,713,706
Cash flows from investing activities:
Increase in deferred development costs -- (148,923) (391,438)
Purchase of capital assets (136,142) (96,634) (687,515)
Purchase of goodwill -- -- (484,063)
Purchase of publishing rights -- -- (111,350)
- ----------------------------------------------------------------------------------------------------------------
(136,142) (245,557) (1,674,366)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 122,330 (804,902) 709,289
Cash, beginning of year (79,731) 725,171 15,882
- ----------------------------------------------------------------------------------------------------------------
Cash, end of year $ 42,599 $ (79,731) $ 725,171
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
1. General:
The Company is incorporated under the provisions of the Ontario Business
Corporations Act. ActFit.Com Inc. is a specialized vertical market ASP
(Application Service Provider) that licenses and delivers on-line
applications, customized programs and specialized marketing services to
business-to-business and business-to-consumer Active Lifestyle
organizations.
2. Basis of presentation:
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles applicable to a going concern
which assumes the realizations of assets and settlement of liabilities in
the normal course of operations. Continued operations depend upon the
Company's ability to attain profitable operations and obtain sufficient
cash from external financing to meet the Company's liabilities as they
become payable. These conditions and events cast substantial doubt on the
Company's ability to continue as a going concern. Management is of the
opinion that sufficient working capital will be obtained from operations
and external financing to meet the Company's liabilities and commitments
as they become payable.
3. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries.
(b) Capital assets:
Capital assets are stated at cost less accumulated amortization.
Amortization is provided for over the estimated useful lives of the
assets using the following basis and annual rates:
- --------------------------------------------------------------------------------
Asset Basis Rate
- --------------------------------------------------------------------------------
Furniture and equipment Declining balance 20%
Computer hardware Declining balance 30%
Automobile Declining balance 30%
Computer software Straight line 100%
Leasehold improvements Straight line 20%
- --------------------------------------------------------------------------------
F-4
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
3. Significant accounting policies (continued):
(c) Deferred development costs:
Development costs related to specific projects that in the Company's
view have a clearly defined future market are deferred and amortized
commencing in the year following that in which the new product
development was completed. All other research and development costs
are charged to earnings in the year incurred. Development costs are
written down to fair value when declines in value are considered to
be other than temporary in nature based upon expected future
benefits.
(d) Goodwill:
Goodwill represents the excess of the purchase price over the fair
market values of net assets acquired, and is amortized on a
straight-line basis over 20 years. On an ongoing basis, management
review the valuation and amortization of goodwill, taking into
consideration any events and circumstances which might have impaired
the fair value. Goodwill is written down to fair value when declines
in value are considered to be other than temporary in nature based
upon expected future benefits.
(e) Income taxes:
The Company follows the deferral method of tax allocation accounting
whereby deferred income taxes result from timing differences in the
recognition of revenue and expenses for income tax and financial
statement purposes.
(f) Earnings per common share:
Basic and fully diluted net earnings per share have been calculated
using the weighted average and maximum dilutive number of shares
outstanding during the year of 19,668,993 common shares (1998 -
13,278,649) and 27,482,983 common shares (1998 - 17,050,618)
respectively.
(g) Revenue recognition:
Revenue is recognized as services are performed or when goods are
shipped. Commitments for future services are deferred until the
service is provided.
F-5
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
3. Significant accounting policies (continued):
(h) Foreign currency translation:
Monetary assets and liabilities denominated in foreign currencies are
translated at the prevailing rates of exchange at the balance sheet
date. Revenue and expenses are translated at the exchange rates
prevailing on the transaction date. Realized and unrealized exchange
gains and losses are included in earnings.
(i) Use of estimates:
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the year reported. Actual
results could differ from those estimates.
(j) Stock-based compensation plans:
The Company has a stock-based compensation plan, which is described
in note 7. No compensation expense is recognized for these plans when
stock or stock options are issued to employees. Any consideration
paid by employees on exercise of stock options or purchase of stock
is credited to share capital. If stock or stock options are
repurchased from employees, the excess of the consideration paid over
the carrying amount of the stock or stock option cancelled is charged
to retained earnings.
(k) Comparative figures:
Certain comparative figures have been reclassified to conform with
the financial presentation adopted in the current year.
F-6
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
4. Capital assets:
- --------------------------------------------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 511,126 $ 359,011 $ 152,115
Computer hardware 449,750 207,087 242,663
Automobile 13,074 12,157 917
Computer software 62,574 53,273 9,301
Leasehold improvements 204,468 99,998 104,470
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,240,992 $ 731,526 $ 509,466
- --------------------------------------------------------------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 485,045 $ 323,894 $ 161,151
Computer hardware 354,062 123,975 230,087
Automobile 13,074 11,765 1,309
Computer software 48,201 35,154 13,047
Leasehold improvements 204,468 59,104 145,364
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,104,850 $ 553,892 $ 550,958
- --------------------------------------------------------------------------------------------------------------------------------
5. Deferred development costs:
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 418,879 $404,749 $ 50,494
Costs deferred during the year -- 223,259 528,449
Investment tax credit claimed on additions -- (74,336) (137,011)
Costs written off during the year (418,879) (69,196) -
Amortization during the year -- (65,597) (37,183)
- --------------------------------------------------------------------------------------------------------------------------------
$ -- $418,879 $ 404,749
- --------------------------------------------------------------------------------------------------------------------------------
During the year, management discontinued the development of its various
interactive CD-Rom products. Accordingly, management has written off
these development costs as there is no measurable future benefit to
deferring these costs to a future period.
F-7
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
6. Loans payable:
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Demand loan - bears interest at prime plus 2.5%, secured by a general
security agreement, repayable in blended interest and principal
payments of $2,500 $ 123,277 $ --
Note payable - bears interest at 12% per annum, due on demand and unsecured 10,700 10,700
Note payable - non-interest bearing, due on demand and unsecured 127,993 20,952
Note payable - non-interest bearing, due on demand and unsecured 81,617 --
Note payable - bears interest at prime plus 6% per annum, due on April 2, 1999 and is
secured by a general security agreement, 300,000 common shares of the Company and
guarantees by several third parties -- 231,231
Note payable - bears interest at 14% per annum, due on November 30, 1998
and secured by convertible promissory note, general security agreement,
500,000
common shares of the Company and several guarantees by former directors and a related
company. This loan was subsequently converted to equity -- 290,782
Note payable - bears interest at 12% per annum, due on January 31, 1999 and secured by
a general security agreement, 650,000 common shares of the Company and 475,000 common
shares of another public company -- 76,010
Notes payable - non-interest bearing, due on demand and unsecured -- 254,329
- ------------------------------------------------------------------------------------------------------------------------------
$ 343,587 $ 884,004
- ------------------------------------------------------------------------------------------------------------------------------
F-8
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
7. Long-term debt:
- -----------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Equipment loan - bearing interest at 13.6% per annum, secured by the
equipment, repayable in blended monthly principal
and interest payments of $2,089, due November 2000 $ 32,839 $ 47,674
Equipment loan - bearing interest at 8.625% per annum, secured by the
equipment, repayable in blended monthly principal
and interest payments of $4,239, due March 2001 60,074 95,130
Equipment loan - bearing interest at 14.8% per annum, secured by the
equipment, repayable in blended monthly principal
and interest payments of $1,639, due February 2001 27,702 43,354
Equipment loan - bearing interest at 22% per annum, secured by the
equipment, repayable in blended monthly principal
and interest payments of $1,029, due October 1999 -- 9,569
Small business loan - bearing interest at prime plus 2.5%, secured by a
general security agreement, repayable in monthly principal amounts of
$4,167, subsequently converted
to a demand loan -- 162,500
- -----------------------------------------------------------------------------------------------------------------------
120,615 358,227
Less current portion 104,859 232,049
- -----------------------------------------------------------------------------------------------------------------------
$ 15,756 $ 126,178
- -----------------------------------------------------------------------------------------------------------------------
Principal repayments for the next two years are as follows:
- -----------------------------------------------------------------------------------------------------------------------
2000 $ 104,859
2001 15,756
- -----------------------------------------------------------------------------------------------------------------------
$ 120,615
- -----------------------------------------------------------------------------------------------------------------------
F-9
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
8. Capital stock:
Authorized:
2,000,000 preference shares
Unlimited common shares
- ---------------------------------------------------------------------------------------------------------------
Number
Issued common shares of shares Amount
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,018,291 $ 2,847,337
Issued for exercise of Series A share purchase warrants 100,000 50,000
Issued for exercise of Series E share purchase warrants 87,374 67,230
Issued for exercise of stock options 13,125 13,593
Issued to consultant for services rendered 7,000 7,000
Issued for cash from private placement 717,500 143,500
Issued to consultant for services rendered 667,514 133,503
Cancellation of common shares (3,750) (3,750)
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 14,607,054 3,258,413
Issued for exercise of Series E share purchase warrants 766,594 574,945
Issued for exercise of stock options 1,127,775 297,805
Issued to consultants for services rendered 1,785,886 389,695
Issued for cash from private placement,
net of issue costs of $142,622 3,691,389 1,991,219
Issued for conversion of debt 791,123 305,556
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 22,769,821 $ 6,817,633
- ---------------------------------------------------------------------------------------------------------------
There are no issued preference shares.
During the years, the following occurred:
(a) On March 16, 1998, the Company cancelled 100,000 Series A purchase
warrants
(b) On March 23, 1998, the Company issued 100,000 common shares upon
exercising of Series A purchase warrants for consideration of $50,000
(c) On April 14, 1998, the Company cancelled 3,750 common shares
previously issued December 3, 1997
F-10
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
8. Capital stock (continued):
(d) On March 12, 1999, the Company issued 283,000 common shares on
conversion of debt of $74,900.
(e) On April 7, 1999, the Company issued 40,000 common shares on
conversion of debt of $20,000.
(f) On July 28, 1999, the Company issued 468,123 common shares on
conversion of debt of $210,656.
(g) Common shares issued in 1998 and 1999 by way of a private placement:
- -------------------------------------------------------------------------
Date Number of shares Consideration
- -------------------------------------------------------------------------
November 18, 1998 717,500 $ 143,500
- -------------------------------------------------------------------------
717,500 $ 143,500
- -------------------------------------------------------------------------
March 23, 1999 920,833 $ 138,125
May 5, 1999 238,095 109,524
June 2, 1999 1,511,629 967,442
July 29, 1999 1,020,832 918,750
- -------------------------------------------------------------------------
3,691,389 $2,133,841
- -------------------------------------------------------------------------
F-11
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
8. Capital stock (continued):
(h) Common shares issued in 1998 and 1999 upon exercising of Series E
purchase warrants:
- --------------------------------------------------------------------------
Date Number of shares Consideration
- --------------------------------------------------------------------------
April 16, 1998 17,000 $ 14,450
April 18, 1998 70,374 52,780
- --------------------------------------------------------------------------
87,374 $ 67,230
- --------------------------------------------------------------------------
June 15, 1999 57,500 $ 43,125
June 17, 1999 124,918 93,689
June 25, 1999 63,945 47,959
June 30, 1999 101,019 75,764
July 28, 1999 137,536 103,152
September 1, 1999 68,124 51,093
September 13, 1999 213,552 160,163
- --------------------------------------------------------------------------
766,594 $ 574,945
- --------------------------------------------------------------------------
Stock Option Plan:
------------------
The Company has a Stock Option Plan (the "Plan") for directors, officers,
employees, consultants and advisors of Actfit.Com Inc., its subsidiaries
and affiliates. The purpose of the Plan is to attract, retain and
motivate management and staff by providing them with the opportunity,
through share options, to acquire a proprietary interest in the Company
and to benefit from its growth.
During 1999, the Company increased the number of common shares reserved
for issuance under the Plan from 4,000,000 to 11,000,000.
No single individual may hold options in respect of more than 5% of the
outstanding common shares unless approved by the shareholders. During the
year, the shareholders granted approval to an officer of the Company
permission to receive the grant of options in excess of the 5% of the
shares outstanding. Stock options for employees are exercisable on the
basis of continuing employment. Options given in a year are exercisable
to the extent of 25% for every three months of employment from the date
granted.
F-12
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
8. Capital stock (continued):
A summary of the Company's stock option plan as of December 31, 1999 and
1998 and the changes during the years ended is presented below:
- --------------------------------------------------------------------------------
Share options Average Exercise Price
- --------------------------------------------------------------------------------
Balance, January 1, 1998 883,000 $ 1.34
Granted 710,000 0.45
Exercised (13,125) 1.04
- --------------------------------------------------------------------------------
Balance, December 31, 1998 1,579,875 $ 0.94
- --------------------------------------------------------------------------------
Granted 5,405,500 0.41
Exercised (1,127,775) 0.26
Expired or cancelled (991,375) 1.31
- --------------------------------------------------------------------------------
Balance, December 31, 1999 4,866,225 $ 0.45
- --------------------------------------------------------------------------------
Of the share options outstanding, 3,752,625 (1998 - 1,579,875) were fully
vested and exercisable.
Stock options:
Information relating to stock options outstanding at December 31, 1999
were as follows:
Options outstanding Options exercisable
- ---------------------------------------------------------------------------------------------------------------------
Weighted-average
- ---------------------------------------------------------------------------------------------------------------------
Range of remaining Weighted- Weighted-
exercise Options contractual average Options average
prices Outstanding life exercise price outstanding exercise price
- ---------------------------------------------------------------------------------------------------------------------
$0.15 to $0.20 3,063,725 2.00 years $ 0.19 2,082,625 $ 0.18
$0.45 to $0.88 940,000 1.36 years 0.58 915,000 0.57
$1.00 to $1.87 862,500 1.62 years 1.23 755,000 1.23
- ---------------------------------------------------------------------------------------------------------------------
4,866,225 3,752,625
- ---------------------------------------------------------------------------------------------------------------------
F-13
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
8. Capital stock (continued):
Share Purchase Warrants:
The holders of the share purchase warrants entitle the holder to purchase
one common share for each warrant held. The outstanding purchase warrants
are as follows:
- ----------------------------------------------------------------------------------------------------------------
Expiry date Exercise Price 1999 1998
- ----------------------------------------------------------------------------------------------------------------
March 31, 2002 - Series A $ 1.00 500,000 500,000
March 31, 2002 - Series B 1.50 200,000 200,000
March 31, 2002 - Series C 0.50 200,000 200,000
June 30, 2000 - Series E 0.75 977,500 1,744,094
June 16, 2004 - Series G 0.80 572,000 --
June 17, 2001 - Series H 1.10 498,265 --
- ----------------------------------------------------------------------------------------------------------------
2,947,765 2,644,094
- ----------------------------------------------------------------------------------------------------------------
During 1997, as part of the reverse takeover transaction involving the
Company, the Company issued 11,033,532 common shares, 600,000 Series A
purchase warrants, 200,000 Series B purchase warrants, 200,000 Series C
purchase warrants, 100,000 Series D purchase warrants, and 2,866,666
Series E purchase warrants.
The Series G and Series H share purchase warrants were issued in
conjunction with the private placements completed in June and July, 1999.
9. Income taxes:
The Company and its subsidiaries have non-capital losses of approximately
$6,746,000 which may be available to offset future income for tax
purposes. The potential tax benefits have not been reflected in these
financial statements. The losses will expire as follows:
- --------------------------------------------------------
2000 $ 15,000
2001 14,000
2002 55,000
2003 256,000
2004 257,000
2005 3,323,000
2006 2,826,000
- --------------------------------------------------------
$ 6,746,000
- --------------------------------------------------------
F-14
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
10. Supplemental cash flow information:
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Changes in non-cash operating working capital:
Decrease in accounts receivable $ 43,395 $ 464,268 $ (538,714
Decrease (increase) in investment tax
credits recoverable 429,873 (74,336) (273,157)
Decrease (increase) in prepaid expenses
and sundry assets (9,465) 39,021 (167,534)
Decrease in inventory -- 82,412 (76,018)
Increase in accounts payable and accrued liabilities 244,306 431,487 329,710
- ---------------------------------------------------------------------------------------------------------------
$ 708,109 $ 942,852 $ (725,713)
- ---------------------------------------------------------------------------------------------------------------
Other information:
Cash paid for interest $ 70,602 $ 90,780 $ 12,806
Cash paid for income taxes -- -- --
- ---------------------------------------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities:
(a) The carrying values of cash, accounts receivable, investment tax
credits recoverable, bank indebtedness, accounts payable and accrued
liabilities and loans payable approximate their fair value due to the
relatively short periods to maturity of these items or because they
are receivable or payable on demand.
The carrying value of long-term debt, other than non-interest bearing
debt, approximates their fair value as the terms and conditions for
similar types of borrowing arrangements of these items are comparable
to current market conditions for similar items.
The carrying value of long-term debt, specifically non-interest
bearing debt, is not practical to determine due to the limited amount
of comparable market information available.
(b)Credit risk:
The Company does not have a significant exposure to any individual
customer or counterparty.
F-15
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
12. Commitments and contingencies:
(a) Lease commitments:
The Company rents premises under various operating leases which
expire at various dates up to 2002. The annual minimum lease payments
under these leases are as follows:
- --------------------------------------------------------------------
2000 $ 97,000
2001 95,000
2002 32,000
- --------------------------------------------------------------------
(b) The Company and its subsidiaries are involved in certain litigation
arising out of the ordinary course and conduct of its business. The
outcome of this litigation is not currently determinable. Although
such matters cannot be predicted with certainty, management does not
consider the Company's exposure to such litigation to be material to
these financial statements.
F-16
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
13. Differences between Canadian and United States Generally Accepted
Accounting Principles (GAAP):
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP")
which, in the case of these financial statements, conform in all
significant respects with those in the United States ("US GAAP"), except
as follows:
(A) Adjustment to earnings
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Income (loss) for the year in accordance with
Canadian GAAP $ (3,920,802) $ (3,832,094) $ 270,989
Less deferred development costs incurred in year1 -- (148,923) (354,255)
Less compensation expense5 (2,046,033) -- (62,938)
Add deferred development costs written off which
were adjusted in prior years 418,879 -- --
Add amortization of goodwill on reverse
take-over acquisition -- 5,052 2,526
- ---------------------------------------------------------------------------------------------------------------
Income (loss) in accordance with US GAAP $ (5,547,956) $ (3,975,965) $ (143,678)
- ---------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares under BASIC EPS3 19,668,993 13,278,649 11,950,243
- ---------------------------------------------------------------------------------------------------------------
BASIC loss per share in accordance with US GAAP3 $ (0.28) $ (0.30) $ (0.01)
- ---------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
and their equivalents under the treasury
stock method3 23,245,780 14,403,954 13,418,742
- ---------------------------------------------------------------------------------------------------------------
The effect of the conversion of warrants and options would not have
had a dilutive effect and therefore no diluted loss per share is
disclosed.
F-17
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
13. Differences between Canadian and United States Generally Accepted
Accounting Principles (GAAP) (continued):
(B) Adjustments to assets and shareholders' equity
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
(i) Total assets in accordance with Canadian GAAP $ 688,080 $ 1,663,116 $ 3,717,915
Less deferred development costs1 -- (418,879) (404,749)
Less goodwill on reserve-takeover acquisition4 -- (93,461) (101,038)
- ----------------------------------------------------------------------------------------------------------------
Total assets in accordance with US GAAP $ 688,080 $ 1,150,776 $ 3,212,128
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
(ii) Total shareholders' deficiency in accordance
with Canadian GAAP $ (757,463) $ (395,881) $ 3,025,137
Less deferred development costs incurred1 -- (148,923) (354,255)
Less compensation expense5 (2,046,033) -- (62,938)
Add deferred development costs written off in prior years 418,879 -- --
Add amortization of goodwill on reverse-takeover
acquisition4 -- 5,052 2,526
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' deficiency in accordance
with US GAAP $ (2,384,617) $ (539,752) $ 2,673,408
- ----------------------------------------------------------------------------------------------------------------
(C) Adjustments to cash flows
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Cash expended in investing activities in
accordance with Canadian GAAP $ (136,142) $ (245,557) $ (1,674,366)
Less deferred development costs1 -- (148,923) (354,255)
Add goodwill on reverse-takeover acquistion4 -- 93,461 101,038
- ----------------------------------------------------------------------------------------------------------------
Cash expended in investing activities in accordance
with US GAAP $ (136,142) $ (301,019) $ (1,927,583)
- -------------------------------------------------------------------------------------------------------------------
F-18
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
13. Differences between Canadian and United States Generally Accepted
Accounting Principles (GAAP) (continued):
1. Canadian GAAP permits the capitalization of product development
costs if certain criteria are met. Under US GAAP, product
development costs are expensed as incurred.
2. Under US GAAP, in accordance with the Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income
Taxes, income taxes are accounted for using the liability method.
Under the liability method, deferred tax assets and liabilities are
recognized for temporary differences between the financial statement
carrying amounts and the tax basis amounts of the respective assets
and liabilities at the enacted tax rates. Such differences arise from
the differences in the timing of income and expense recognition.
Under Canadian GAAP, income taxes are accounted for using the
deferral method whereby the differences between the tax and
accounting basis of the Company's assets and liabilities are measured
at the tax rate in effect when the difference arises. In addition,
deferred tax assets are recognized for loss carryforwards if it is
virtually certain that the benefit will be realized.
3. Under US GAAP, in accordance with the Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share, the
Company is required to disclose basic earnings per share which is
based on the weighted average aggregate number of common shares
outstanding during each year and diluted earnings per share which is
based on the weighted average aggregate number of common shares and
their equivalents outstanding during each year, using the "treasury
stock method" for the outstanding stock options and warrants.
4. Under US GAAP, there is no recognition of goodwill under a
reverse-takeover acquisition.
5. Under US GAAP, in accordance with Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), Accounting for Stock Based
Compensation, the Company is required to recognize stock based
compensation costs for consultants and advisors using the fair value
market method.
F-19
ACTFIT.COM INC.
(FORMERLY LASERMEDIA COMMUNICATIONS CORP.)
Notes to Consolidated Financial Statements (continued)
Year ended December 31, 1999 and 1998
13. Differences between Canadian and United States Generally Accepted
Accounting Principles (GAAP) (continued):
6. Accounting for employee stock options:
US GAAP encourages but does not require companies to record
compensation cost for stock option plans at fair value. The Company
has chosen to continue to account for stock options using the
intrinsic value method as permitted under US GAAP. The United States
accounting pronouncement Financial Accounting Standards Board No.123
(SFAS 123) does, however, require the disclosure of pro forma
earnings and earnings per share information as if the Company had
accounted for its employee stock options issued in 1995 and
subsequent years under the fair value method.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions by year:
- --------------------------------------------------------------------------------
Assumptions 1999 1998
- --------------------------------------------------------------------------------
Risk-free interest rate 6% 6%
Expected life (in years) 1-3 years 1-2 years
Expected volatility 100% 100%
- --------------------------------------------------------------------------------
Had compensation cost for the plan been determined based on the fair
value at the grant dates for awards under the plan consistent with
the method described in SFAS 123, the Company's net earnings and net
earnings per share would have been reduced to the pro forma amounts
indicated below:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net loss:
As reported $ (5,547,956) $ (3,975,965)
Pro forma (5,780,956) (3,977,965)
Basic loss per share:
As reported $ (0.28) $ (0.30)
Pro forma (0.29) (0.30)
- --------------------------------------------------------------------------------
F-20
14. New US Accounting Standards:
(a) In April 1998, the American Institute of Certified Public Accountants
Issued statement of position 98-5 (SOP 98-5) "Reporting on the Costs
of Start-Up Activities", which requires costs of start-up activities
to be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998 and requires initial application to
be reported as the cumulative effect of a change in accounting
principle. Management has not determined the impact of adoption of
SOP 98-5 on its financial statements.
(b) In June 1998, the FASB issued SFAS No. 133 "Derivative Instruments
and Hedging Activities" effective for fiscal quarters beginning after
June 15, 2000. SFAS No. 133 requires that the Company report all
derivative instruments on the balance sheet at fair value. Management
has not determined the impact of adoption of SFAS No. 133 on its
financial statements.
F-21
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
See page F-1
(2) EXHIBITS
1. Articles of Amendment of ActFit.com Inc. dated August 5, 1999
29
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACTFIT.COM INC.
By: /s/ Richard Hue
------------------
Richard Hue
President and Chief
Executive Officer
By: /s/ Samuel C. Paul
-------------------
Samuel C. Paul
Chief Financial Officer,
Treasurer and Secretary
Date: July 13, 2000