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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998
REGISTRATION NO. 000-23785
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
REGISTRATION STATEMENT
-----------------
Registration statement pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934
Commission File Number 000-23785
LASERMEDIA COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in Its Charter)
ONTARIO, CANADA
(Jurisdiction of Incorporation or Organization)
11 CHARLOTTE STREET, TORONTO, ONTARIO, M5V 2H5 (Address of
Principal Executive Office)
COPY TO:
JOHN H. HEUBERGER, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4000
(312) 236-7516 (TELECOPIER)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None None
Securities registered or to be registered pursuant to Section12(g) of the Act:
COMMON STOCK
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section15(d)
of the Act:
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
NOT APPLICABLE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or Section 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.
NOT APPLICABLE
Indicated by check mark which financial statement item the registrant
has elected to follow:
Item 17 Item 18
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TABLE OF CONTENTS
Section Page
EXCHANGE RATES OF THE CANADIAN DOLLAR........................................................................... 1
Item 1. BUSINESS............................................................................................... 2
Item 2. DESCRIPTION OF PROPERTY................................................................................ 22
Item 3. LEGAL PROCEEDINGS...................................................................................... 23
Item 4. CONTROL OF REGISTRANT.................................................................................. 24
Item 5. NATURE OF TRADING MARKET............................................................................... 25
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS............................................................................. 26
Item 7. TAXATION............................................................................................... 27
Item 8. SELECTED FINANCIAL DATA................................................................................ 30
Item 9. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND OPERATING RESULTS FOR LASERMEDIA................................................................... 33
Item 10. DIRECTORS AND EXECUTIVE OFFICERS....................................................................... 37
Item 11. EXECUTIVE COMPENSATION................................................................................. 39
Item 12. OPTIONS TO PURCHASE SECURITIES......................................................................... 40
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS......................................................... 43
Item 14. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED............................................................................................. 45
Items 15-17. NOT REQUIRED.................................................................................. 47
Item 18. FINANCIAL STATEMENTS...................................................................................F-1
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TABLE OF CONTENTS (CONT'D)
Section Page
Item 19(a). FINANCIAL STATEMENTS.......................................................................... 47
Item 19(b). EXHIBITS...................................................................................... 47
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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 Lasermedia Communications Corp. and
its subsidiaries (the "Company") that involve certain risks and uncertainties
discussed under "Risk Factors" below at pages 29-35. 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 registration statement 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
January 30, 1998 the noon buying rate was CDN$1.00 = U.S.$0.6870
Fiscal Year Ended Average High Low Close
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
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ITEM 1. BUSINESS
THE COMPANY
The Company, through its wholly owned subsidiaries, produces and
distributes multimedia interactive consumer software products in the
entertainment, home education and personal fitness categories. Its initial
products are CD-ROM computer programs for fitness training with a companion
Internet web site for instruction, program tracking and fitness trainer
feedback.
The Company was incorporated under the Corporations Act (Ontario,
Canada) on April 20, 1964 under the name Benvan Mines Limited. Its original
business was mineral exploration. On July 10, 1975 its name was changed to Howie
Controls (Canada) Limited. Under this name, the Company became involved in the
photographic film processing business. The name of the Company was changed on
December 9, 1982 to Benvan Holdings, Inc., and on December 27, 1991 to Osgoode
Holdings Inc. As both Benvan Holdings, Inc. and Osgoode Holdings Inc., the
Company operated as a holding company, although it did not carry on any active
business.
Also on June 27, 1997, the name of the Company was changed to
Lasermedia Communications Corp.; its stated capital was reduced; 818,981 common
shares were issued in settlement of outstanding debts in the amount of
CDN$204,745.29; a previously existing stock option plan was repealed and a new
incentive stock option plan for directors, officers, employees, advisors, and
consultants of the Company was adopted; and the Company was authorized to exceed
certain thresholds of the Rules of The Toronto Stock Exchange relating to share
compensation arrangements.
On June 27, 1997, the Company acquired all the issued and outstanding
securities of Lasermedia Inc. ("Lasermedia"). Lasermedia's principal business is
the production and distribution of multimedia interactive consumer software
products in the entertainment, home education and personal fitness categories.
In acquiring Lasermedia, the Company issued the following securities: 11,033,487
common shares, 600,000 Series A common share purchase warrants, 200,000 Series B
common share purchase warrants, 200,000 Series C common share purchase warrants,
100,000 Series D common share purchase warrants, 2,866,666 Series E common share
purchase warrants and 258,000 Series F common share purchase warrants. The
securities issued by the Company in exchange for the issued and outstanding
securities of Lasermedia were valued at CDN $8,300,000. The value of Lasermedia
was determined by an unaffiliated business valuation and litigation support
company. At the time of the acquisition, the President of Lasermedia, Erik
Schannen, owned 32.7% of Lasermedia's common shares. Mr. Schannen is currently
the President and a Director of the Company. Mr. Schannen had no
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business affiliation with the Company prior to the acquisition of Lasermedia.
Mr. Schannen co-founded Lasermedia in August 1994.
The Company has one other wholly owned subsidiary, Verisim, Inc.
("Verisim"), a software company which develops Internet software.
The headquarters and registered office of the Company is located at 11
Charlotte Street, Toronto, Ontario M5V 2H5. Its telephone number is (416)
977-2001. Inquiries should be directed to Brian Gibson, the Company's Chief
Operating 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.
THE MARKET
The multimedia market originated in the early 1990's as products were
developed which combined graphics, sound and motion video for personal
computers. Computer manufacturers recognized the impact multimedia would have on
their business and developed hardware (faster CPU's, sound cards, speakers,
etc.) to accommodate this new communications medium. Currently, almost all
personal computers shipped have multimedia capabilities.
Management believes that CD-ROM technology is becoming the standard
media for presentation and delivery of information on computer programs, and is
generating significant market opportunities in both existing and new
applications. Management also believes that the Company is well placed to
exploit the current technology and new developments like DVD (Digital Versatile
Disc). DVDs have seven times the storage capacity of the current generation of
CD-ROMs, but no higher cost.
Lasermedia's "Active" line of products are targeted to adults between
the ages of 30 and 55. Management believes that middle-aged adults seek products
and services which will help them to remain youthful and improve quality of life
at work and at home. Management also believes that middle-aged adults will be
attracted to entertainment software programs that are challenging, stimulating
and that appear to be a 'good inves(TM)ent,' as an alternative to action packed,
reflex oriented games designed for 13-20 year olds.
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PRODUCTS
Current Products
The Active Library of Products
Lasermedia's library currently consists of three titles, Active
Trainer(TM), Active Abs(TM), and Active Body BLAST(TM) which are in the
personal fitness category. Active
Trainer(TM) entered the market in July 1995, and Active Abs(TM)
followed in May 1997. Active Blast(TM) was released to the market in December
1997.
Active Trainer(TM). Active Trainer(TM) is promoted as a personal
trainer in a box. The user works one-on-one with Mr. USA, Shane Minor, and
fitness expert, Liz West, to design a fitness program suited to the user by
selecting and programming from among the exercises offered on the CD-ROM. A
balance of aerobic, weight training, stretching, and nutritional guidelines are
accessible as part of the program. The user applies the program to set goals,
record progress, and observe the exercises. It is not necessary for the user to
run the program while he or she exercises. Active Trainer(TM) also provides
user oriented pep talks and directions. The suggested retail price of Active
Trainer(TM) is US$49.95.
The Active Trainer(TM) software is built using MacroMedia Director, a
multimedia application development framework. All Active Trainer(TM) data
structures, objects and methods are written in Lingo. The system is compatible
with Macintosh, Windows 3.1, and Windows 95. Active Trainer(TM) features the
following ten (10) modules:
- Shared: This module contains basic computer code and data
structures.
- Introduction: Active Trainer(TM) introduces the user to the
people and philosophy behind the fitness program using video
clips and animation.
- Gym: The gym is comprised of two screens: the Check-In and the
Gym. At the Check-In, the user signs in. The Gym is the main
menu, where the user chooses which areas to visit.
- Fitness Test: The test is comprised of a series of screens
designed to evaluate the user's health history, current
physical fitness and fitness goals. A fitness program and
weekly schedule is prepared based on this information.
- Stretching Area: The Stretching Area introduces the user to
the concepts of warming up and cooling down, and exhibits
stretching exercises.
- Weight Room: This area presents the user with a strength
training routine. This routine can be modified by the user. A
video based explanation of each exercise is complemented by
muscle anatomy and motivational information.
- Aerobics Studio: This area presents a comparative list of
cardiovascular exercises, and a guide to target heart rate,
and allows the user to design an aerobic exercise program.
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- Cafeteria: The cafeteria presents the user with a sample meal
plan. General nutrition information includes an overview of
food groups, the food pyramid, and vitamins. This section
offers recipes for healthy desserts.
- Glossary: The glossary contains a list of concepts used in
Active Trainer(TM), with a brief definition, and cross
references from throughout the program.
- Map: The map gives the user an overview of the structure of
the Active Trainer(TM) screens.
Active Abs(TM). Active Abs(TM) is similar to Active
Trainer(TM) in objectives, but with an added emphasis on abdominal
training. The suggested retail price of Active Abs(TM) is US$19.95.
The Active Abs(TM) software is built using MacroMedia
Director, a multimedia application development framework. All Active
Abs(TM) data structures, objects and methods are written in Lingo. The
system is compatible with Macintosh, Windows 3.1, and Windows 95.
Active Abs(TM) features the following five (5) modules:
- Shared: This module is very similar to Active Trainer(TM), as
the two programs share most of their object structures.
- Main: This is the main menu, similar to Active Trainer(TM)'s
Gym.
- Test: This is a shortened version of Active Trainer(TM)'s
Fitness Test.
- Learn: Learn is an informative quiz debunking the myths of
abdominal training.
- Build: Build is the heart of Active Abs(TM). A different
abdominal workout is designated for the user each day.
Alternatively, the user can design a custom workout by
assembling a sequence of clips from a list of about 35
exercises.
Active Body BLAST(TM). Active Body BLAST(TM) combines Active
Abs(TM) with a new program titled Active Legs & Buns(TM). Active
Legs & Buns(TM) is targeted towards a
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predominantly female audience, emphasizing equipment-free lower body
exercises. The suggested retail price of Active Body BLAST(TM) is
US$49.95.
The Active Legs & Buns(TM) software is built using MacroMedia
Director, a multimedia application development framework. All Active
Legs & Buns(TM) data structures, objects and methods are written in
Lingo. The system is compatible with Macintosh, Windows 3.1, and
Windows 95. Active Legs & Buns(TM) features the following modules:
- Shared: This module is very similar to Active Trainer(TM), as
the two programs share most of their object structures.
- Main: This is the main menu, similar to Active Trainer's(TM)
Gym.
- Test: This is a shortened version of Active Trainer's(TM)
Fitness Test.
- Learn: Learn is an informative quiz debunking the myths of
lower body training.
- Build: Build is the heart of Active Legs & Buns(TM). A
different lower body workout is designated for the user each
day. Alternatively, the user can design a custom workout by
assembling a sequence of clips from a list of about 35
exercises.
Hardware Requirements. A 486/66 or Pentium processor computer
is required to operate the Company's programs in Windows along with a
double speed CD-ROM, 4 megabytes of free RAM, 3 to 18 megabytes disk
space, a sound card and local bus/PCI video, 68040 or PowerPC Macintosh
with double speed CD-ROM, 4.5 megabytes of free RAM and 3 to 18
megabytes disk space. Stereo speakers and a printer are recommended.
Active Trainer(TM), Active Abs(TM), and Active Body BLAST(TM)
Development and Licensing. The fitness content of the Active
Trainer(TM) software program was written by Kevin Chaisson, an
independent consultant of the Company. Mr. Chaisson also assisted in
the final development and assists in developing upgrades for Active
Body BLAST(TM). Mr. Chaisson continues to be engaged by the Company as
a consultant pursuant to a Consulting Services Agreement dated
February 2, 1997. Under the Consulting Services Agreement, Mr.
Chaisson has assisted in the final development of Active Abs(TM) and
has agreed to assist in developing upgrades of Active Trainer(TM) and
Active Abs(TM). The Company pays Mr. Chaisson a royalty ranging from
1.5% to 2.5% of gross revenue from the sale of Active Trainer(TM) and
ranging from 1% to 3% of gross revenue from the sale of Active
Abs(TM). The Company issued 7,000 shares of common stock to Mr.
Chaisson and granted Mr. Chaisson an option to purchase an additional
5,000 shares of common stock upon the combination of the Company and
Lasermedia Either the Company or Mr.
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Chaisson can terminate the service obligations under the Consulting
Services Agreement (but not the royalties) on 30 days notice.
On June 27, 1997, Softech, an unaffiliated limited partnership
("Softech L.P."), purchased from Lasermedia, all of Lasermedia's
ownership rights to the Active Trainer(TM) family of software including
the interactive technologies developed by Lasermedia embodied therein
and subsequent modifications and improvements. The purchase price was
CDN$1,950,000. Concurrently, Softech L.P. engaged Lasermedia to
manufacture on behalf of, and purchase from, Softech L.P. products
derived from that software for resale, and Softech L.P. appointed
Lasermedia as the exclusive reseller of the Active Trainer(TM) line of
software and all related products and services for a period of ten
years. Lasermedia has the option to renew for one further consecutive
period of five years. Lasermedia has the right to use the Active
Trainer(TM) line of software for its own internal research and
development and to prepare derivative works and products. In exchange
for these rights, Lasermedia pays to Softech L.P. a royalty equal to
70% of the gross receipts from the sale of Active products minus
certain costs such as the cost of purchasing Active products from
Softech L.P., costs of goods sold (e.g. shipping, duties and taxes,
packaging, manufacturing), general administrative costs (e.g.
insurance, copyrights and patents, defense of copyrights and patents,
translations), advertising and marketing costs, and up to CDN$50,000
in employment costs. After Softech L.P. has been paid CDN$1,950,000,
Softech L.P.'s royalty rate declines to 30%. As of March 23, 1998,
Lasermedia has paid CDN$250,000 to Softech L.P. Lasermedia is
obligated to purchase a minimum of CDN$62,500 worth of Active product
units for each fiscal quarter in 1998. Lasermedia has not yet achieved
sales in excess of the minimum guarantee. The units are subject to
declining prices ranging from CDN$8.00 per unit for the first 100,000
units to CDN$3.25 per unit after 750,000 units have been purchased.
Softech L.P. is free to license to third parties the technology, which
Lasermedia believes can be useful in developing other interactive
computer products. Lasermedia entered into the sale and license-back
transaction with Softech L.P. to accelerate realization of value of
technology developed by the Lasermedia, which, because of
technological advances, could have limited long-term proprietary
value. The Company plans to engage in sale and license-back
transactions with other new software technology it develops. Proceeds
from the sale of software technology will be used to defray operating
expenses and to support research and development. Approximately $1
million of the CDN$1,950,000 received by Lasermedia from the sale of
the Active Trainer(TM) family of software was allocated to research
and development.
In connection with the sale and leaseback transaction,
Lasermedia issued to Softech L.P. a Series E Warrant to purchase
2,751,666 shares of Lasermedia's common stock at an exercise price of
CDN$0.75 per share. The Series E Warrant is scheduled to expire, unless
sooner exercised, in March 2002. Softech L.P. distributed the Series E
Warrant to its partners.
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ActiveTrainer.com
The Company has an Internet web site, ActiveTrainer.com, at
http://www.activetrainer.com. The web site provides bulletin board
service (BBS) for interacting with the Company's personal trainers. On
its web site, the Company publishes weekly articles on fitness and
nutrition. ActiveTrainer.com provides a shopping site for fitness
software, equipment and vitamin supplements. The Company's web site
also presents information about the Company and its future products.
Ancillary Multimedia Services
Lasermedia offers multimedia services to corporate clients.
These services include the development of customized multimedia
software, animation, and design and Internet web site development.
These services are complementary to Lasermedia's core software and
production activities. Lasermedia's ancillary multimedia services have
included the following specially manufactured titles:
Architectura, a CD-ROM magazine for AutoDesk Press, entailed
development of a quarterly magazine which provided the users
of AUTOCAD (engineering and architectural software) with news,
tips on using CAD software, and video interviews with industry
leaders. The first issue was included in all AutoDesk products
and Trade Shows, with an estimated first run of 50,000 units.
RxPlus, a floppy disk multimedia presentation that was
distributed in the June 1996 issue of Human Resources
Professional magazine to explain the impact of Ontario's Bill
C26 (the Omnibus Bill) on the future cost of prescription
drugs.
Product Development
Financing of Product Development
Active Trainer(TM) was financed through shareholder loans and
operating cash flow. Both Active Abs(TM) and Active Legs & Buns(TM)
were financed through the Company's cash flow from operations and
proceeds from the sale of the Active Trainer(TM) family of software to
Softech L.P.
Product Acquisition
The Company routinely evaluates companies and products for
acquisition. Of primary concern are those companies and software rights
which can advance existing
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Company projects. Recently, the Company purchased rights to certain
application computer software known as "Beat 2000 CD-ROM Software
Product", which Lasermedia currently markets as "Maestro TM "Maestro
TM is fully optimized for MMX TM technology, and can import and
create tracks for playback on PC, Mac, Unix and the Web. Sound
effects, a programmable virtual drum machine, volume and stereo
panning can all be laid down on 20 tracks with no time limits. Users
can create sounds for jazz, classical and rock music. This CD-ROM
product comes with a library of sound and premixed song files and
also features effects such as normalizing, panning, echo, timing and
pitch control. Individual tracks and songs can be displayed in seconds
or by frames.
By a consulting agreement dated September 24, 1997, the
Company retains the consulting services of Aludra Software Inc. in
connection with the development of computer software products. Aludra
Software Inc. holds options to purchase 20,000 shares.
Research and Development
The following products are being developed by Verisim, a
wholly owned subsidiary of the Company. As of March 31, 1998, revenue
had not yet been generated by Verisim with respect to the products it
is developing.
Project VR Management believes that this virtual realty
product will create its own market niche among home exercise equipment
owners. Active VR will enable the user to train and compete on exercise
bikes and treadmills through virtual reality courses and follow a
comprehensive training plan in the process. Users will select a course
for themselves or go online to compete head to head with others via the
Internet.
A professional version of VR will be bundled with exercise
equipment and a computer for gyms. Other products based on the VR
engine include a motorcycle racing game.
Currently VR is in the development phase. The first product
based on the technology is currently scheduled to be released during
the second fiscal quarter of 1998.
Epic Management believes that the most popular games are those
that involve real life opponents and allies, plots and strategies.
Verisim is developing a game engine to serve as the foundation for a
series of Internet based games. These games will be based on organic
territories that shift and grow with the players. Users will be able to
play with or against hundreds of other participants over the Internet.
Revenue is expected to be generated from subscriptions, advertising
placements, sponsorships, and licensing of the technology.
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Verisim's Epic technology has reached the stage of development
where independent sections are now working together. It is anticipated
that Verisim's Epic game will be introduced before the end of 1998.
Project Tracker This tracking and calendar software micro
manages the user's fitness and nutrition goals. It includes scheduling
of fitness activities, recording of results, tracking food intake with
a complete nutrition database, and charting progress. Tracker will work
as a stand alone product, in conjunction with the Active Trainer TM
products, or on the Internet.
Project Tracker is currently in the testing phase, with
release currently scheduled in the second fiscal quarter of 1998.
Project Green This golf teaching tool brings the expertise of
a golf pro to the user.Like Active Trainer TM and its list of exercises
and demos, Project Green features a list of video clips describing the
aspects of a golf game. The program also includes a golf game analysis
on any course the user builds, and a series of golf drills that the
user goes through to help improve his or her game.
Project Green is in the early development phase, and is
scheduled to enter the market during the third fiscal quarter of 1998.
Project Pacific Going beyond physical fitness and sports to
the realm of mind/body wellness, Project Pacific is a stress management
CD-ROM. This program is expected to give users the tools they need to
gain control of the everyday causes of stress. Topics covered include
goal setting, time management, handling disagreements, and achieving
goals. A stress test is planned to analyze the user's level of stress
and its sources, and to suggest areas of the program the user should
study first.
Project Pacific is in the planning phase, and is currently
scheduled to enter the market during the fourth fiscal quarter of 1998.
MANUFACTURING
Lasermedia's products are manufactured by unaffiliated third parties,
including Media Duplication Corp., Goldrich Printpak Inc., Legg Bros., Graphics
Limited, Accu-Measure Inc., American & Efird Canada Inc., 960180 Ontario Inc.
c.o.b. as Rite Printing and Brown Packaging. Lasermedia is not dependent upon a
single supplier or manufacturer of products.
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DISTRIBUTION
Active Trainer# was initially offered and sold through mail order
software catalogues and magazines. Since its introduction in July 1995 through
December 31, 1997, approximately 20,000 copies have been sold. Lasermedia
intends to continue to offer Active Trainer# and other Active products through
mail order software catalogues.
Lasermedia has embarked on an aggressive effort to develop a
comprehensive distribution network for its products. No single customer or group
of customers represents in excess of 10% of the Company's revenues. Lasermedia's
customers include Best Buy, CompUSA, American TV, Computer City, Hastings, Data
Vision, Egg Head, Fry's, J&R Computer World, Micro Center, Tiger Direct, Media
Play, Nationwide, R C S Computer Experience, T Zone and Electronic Boutique.
Lasermedia has distribution contracts with Micro Central, Merisel Americas,
Inc., Computer City, Micro Center and Simitar Entertainment Inc. Lasermedia
anticipates distribution contracts with Ingram Micro, Tech Data and Navarre.
ADVERTISING AND PROMOTION
In connection with the Company's advertising and promotion, CDN$50,000
per month has been allocated for each product line to best ensure product
awareness. This amount will vary from time to time to compensate the launch of
new products and up-grades.
Web Site
The Company gains exposure for its web addresses
(http://www.lasermedia.com and http://activetrainer.com) by prominently
displaying its web addresses on all new packaging, T- shirts, mailouts and
printed promotional material. In addition the Company continues to research the
most effective methods of drawing hits using the on-line search engines. These
search engines employ various criteria strategies including key works,
categories, phrases, daemons and Internet addresses to aid web users to locate
specific information.
The Company intends to continue to use its web site to market Active
Trainer#, collect customer profiles, develop awareness of the Company, and build
a stable of advertisers for its commercial Internet site. The Company intends to
add new products to the site as they are developed, with "Coming Soon" type
promotions announcing upcoming products. The Company also intends to promote its
products through selected Internet news groups. These news groups enable people
to go to a common Internet site to obtain the latest information on a subject of
particular interest. The Company intends to encourage employees to join news
groups to allow for "signature files" (information that automatically appears
with e-mail) which would include an on-line catch phrase about the Company's
products and where to get more information.
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Magazines and Catalogues
Magazines and catalogues, including Tiger Software (circulation 1.5
million), MacWarehouse and Computer Life, have been selected for their
wide circulation in both Canada and the United States. Lasermedia initially
tested Active Trainer TM sales through such magazines and catalogues. The
CD-ROM catalogues provided the least expensive, most efficient medium of
communication to a large, widely dispersed audience. Active Trainer TM has
consistently been in the top five sellers for Tiger Software. The Company
intends to continue to selectively place print media advertisements in
publications that attract readers within the Company's target market.
Trade Shows
The Company attended the Retail Vision trade show from March 31, 1998
to April 4, 1998 and anticipates attending the comparable autumn Retail Vision
trade show. In addition, the Company anticipates participating in the E3
Electronic Expo to be held in June 1998. The Company recently participated as an
exhibitor at The Fitness Show which was held in Atlanta from February 6-8, 1998.
COMPETITION
The interactive consumer software market is characterized by intense
competition and by rapidly changing technology, evolving industry standards and
frequent new product 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 potential new competitors, including large software and
hardware companies, media companies and film studios, are increasing their focus
on interactive entertainment and the home educational consumer software market.
Only a small percentage of products introduced in the consumer computer
software market achieve any degree of sustained market acceptance. The principal
competitive factors guiding the success of a particular consumer computer
software product include technological innovation, product features, ease of
use, perceived quality, reliability, brand recognition, marketing strategy,
selling price, access to distribution channels and retail space and availability
to the consumer of technical support for the product. The Company believes that
it competes effectively in these areas.
The Company is aware of the following CD-ROM fitness products:
Lifeform (Fitnesoft Inc.), which is a health and lifestyle
record keeping tool that does not offer fitness testing or
recommendations for an exercise program. It allows the user to
keep a record of medical history, nutritional intake and
exercise
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habits and then charts the user's progress. It does not offer
any multimedia content;
Multimedia Workout (Lifestyle Software Group) offers
recordkeeping features and video clips of weight training
exercises. It does not offer the interactive fitness test and
the video based personal training features of Active
TrainerTM;
The Mayo Clinic Sports Health & Fitness (IVI Publishing)
provides the user general guidelines for a fitness regimen,
but not a specific program, based on a video guided fitness
test similar to that in Active Trainer TM. The program also
presents articles on nutrition, exercise and sports. Video
content includes interview clips from ESPN and demonstrations
of some of the exercises; and,
BodyCraft (AlphaSport) presents a generic exercise program and
promoter protein supplement products offered by AlphaSport.
This product has been heavily promoted to "Give you rippling
abs in 30 days or don't pay".
The Company's share of the fitness and excercise software market is
approximately 18%, as determined by PC Data.
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 in all instances.
On June 9, 1997 the Company received a letter from Laser Media Inc. of
Los Angeles, California which requested that the Company cease and desist using
the domain name "Lasermedia" on the Internet. The Company offered to change its
domain name. However, Laser Media Inc. chose to institute a compliant procedure
with Network Solutions' Domain Name Dispute Policy ("Network Solutions").
Network Solutions, under the authority of the Depar(TM)ent of Defense, assigns
Internet domain names on a first-come, first-serve basis. If there is a
conflict, Network Solutions can suspend the use of the name. It has no authority
to impose any other legal remedy. The Company has offered a compromise to share
the "Lasermedia" domain name with differentiations and cross-references. Laser
Media, Inc. has declined this solution. The Company
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intends to continue to seek an amicable compromise of this matter. The Company
has filed trademark applications in both the U.S. and Canada for "LaserMedia."
On June 27, 1997, Softech, an unaffiliated limited partnership
("Softech L.P."), purchased from Lasermedia, all of Lasermedia's ownership
rights to the Active Trainer TM family of software and subsequent modifications
and improvements. The purchase price was CDN$1,950,000. Concurrently, Softech
L.P. engaged Lasermedia to manufacture on behalf of, and purchase from, Softech
L.P. products derived from that software for resale, and Softech L.P. appointed
Lasermedia as the exclusive reseller of the Active Trainer TM line of software
and all related products and services for a period of ten years. Lasermedia has
the option to renew for one further consecutive period of five years. In
addition, Lasermedia has the right to use the Active Trainer TM line of
software for its own internal research and development and to prepare
derivative works and products. In exchange for these rights, Lasermedia pays to
Softech L.P. a royalty equal to 70% of the gross receipts from the sale of
Active products minus certain costs such as the cost of purchasing Active
products from Softech L.P., costs of goods sold (e.g. shipping, duties and
taxes, packaging, manufacturing), general administrative costs (e.g. insurance,
copyrights and patents, defense of copyrights and patents, translations),
advertising and marketing costs, and up to CDN$50,000 in employment costs.
After Softech L.P. has been paid CDN$1,950,000, Softech L.P.'s royalty rate
declines to 30%. As of March 23, 1998, Lasermedia has paid $250,000 to Softech
L.P. Lasermedia is obligated to purchase a minimum of CDN$62,500 worth of
Active product units for each fiscal quarter in 1998. Lasermedia has not yet
achieved sales in excess of the minimum guarantee. The units are subject to
declining prices ranging from CDN$8.00 per unit for the first 100,000 units to
CDN$3.25 per unit after 750,000 units have been purchased. Softech L.P. is free
to license to third parties the technology, which Lasermedia believes can be
useful in developing other interactive computer products. Lasermedia entered
into the sale and license-back transaction with Softech L.P. to accelerate
realization of value of technology developed by Lasermedia, which, because of
technological advances, could have limited long-term proprietary value. The
Company plans to engage in a number of sale and license-back transactions with
other new software technology it develops. Proceeds from the sale of software
technology will be used to defray operating expenses and to support research
and development. Approximately $1 million of the CDN$1,950,000 received by
Lasermedia from the sale of the Active Trainer TM family of software was
allocated to research and development.
In connection with the sale and leaseback transaction, Lasermedia
issued to Softech L.P. a Series E Warrant to purchase 2,751,666 shares of
Lasermedia's common stock at an exercise price of CDN$0.75 per share. The Series
E Warrant is scheduled to expire, unless sooner exercised, in March 2002.
Softech L.P. distributed the Series E Warrant to its partners.
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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 December 31, 1997, the Company, including Lasermedia and Verisim
employed 36 employees of which five are in administration, 27 in product
development, one in product support and three in sales and marketing.
SEASONAL VARIATION
The Company has not experienced significant effects of seasonality to
date; however, the operating results of many software companies reflects
seasonal fluctuations. For example, many software 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 inves(TM)ent
in the Company.
Limited History of Operations and Profitability
The Company has a limited operating history. 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 the production of multimedia
software. The Company experienced increased quarterly revenue over the five
fiscal quarters in the period ended December 31, 1996. However, such growth
rates may not be sustainable and is not indicative of future operating results.
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.
Reliance on Active Trainer(TM)
Revenue from Active Trainer(TM) accounted for approximately 80% of the
Company's total revenues during fiscal year 1996, and approximately 15% of
sales during fiscal year 1997. If Active Trainer(TM) fails to continue to sell
or if the Company fails to replace the Active Trainer(TM)
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product with additional products generating significant revenue, the Company's
business, operating results and financial conditions will be materially and
adversely affected.
License with Softech L.P.
On June 27, 1997, Softech L.P., an unaffiliated limited partnership,
purchased from Lasermedia, all of Lasermedia's ownership rights to the Active
Trainer(TM) family of software and subsequent modifications and improvements.
The purchase price was CDN$1,950,000. Concurrently, Softech L.P. engaged
Lasermedia to manufacture on behalf of, and purchase from, Softech L.P.
products derived from that software for resale, and Softech L.P. appointed
Lasermedia as the exclusive reseller of the Active Trainer(TM) line of software
and all related products and services for a period of ten years. Lasermedia has
the option to renew for one further consecutive period of five years. In
addition, Lasermedia has the right to use the Active Trainer(TM) line of
software for its own internal research and development and to prepare
derivative works and products. In exchange for these rights, Lasermedia pays to
Softech L.P. a royalty equal to 70% of the gross receipts from the sale of
Active products minus certain costs such as the cost of purchasing Active
products from Softech L.P., costs of goods sold (e.g. shipping, duties and
taxes, packaging, manufacturing), general administrative costs (e.g. insurance,
copyrights and patents, defense of copyrights and patents, translations),
advertising and marketing costs, and up to CDN$50,000 in employment costs.
After Softech L.P. has been paid CDN$1,950,000, Softech L.P.'s royalty rate
declines to 30%. As of March 23, 1998, Lasermedia had paid $250,000 to Softech
L.P. The long term success of the Company depends on the Company developing
additional products which generate significant revenue to dilute the percentage
of total revenue absorbed by the license with Softech L.P. There can be no
assurance that the Company will be able to develop such products.
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 products, the Company's ability to develop new products, research and
development activities, the timing of new product introductions and product
enhancements by the Company and its competitors, market acceptance of the
Company's new and enhanced products, the emergence of new industry standards,
the timing of customer orders, the mix of products sold, 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 typically operates with a relatively small order
backlog. As a result, quarterly sales and operating results depend in part on
the volume and timing of orders received within the quarter. The Company has not
experienced significant effects of seasonality to date; however, the operating
results of many software companies reflects 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.
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Rapid Technology Change
The consumer software 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. To date, the
Company's product development efforts have been directed towards multimedia
PC's. While the Company expects that the installed base of multimedia PC's will
continue to grow at a rapid pace, it recognizes that consumer preference can
quickly shift to other platforms and formats. There can be no assurance that the
Company will be able to create software titles for other emerging hardware
platforms. 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 software
industry in a timely manner, this inability could have a material adverse effect
on the Company's operations.
Risks Associated with New Product Development
and Timely Introduction of New and Enhanced Products
The Company's future success will depend to a substantial degree upon
its ability to enhance its existing products and to develop and introduce, on a
timely and cost-effective basis, new products 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, technologically advanced
multimedia products is a complex and uncertain process requiring high levels of
innovation, as well as accurate anticipation of technological and market trends.
The introduction of new or enhanced products also requires the Company to manage
the transition from older products in order to avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet customer demand. There can be no assurance that the Company
will successfully develop, introduce or manage the transition to new products.
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 or
shipment 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.
Risks Associated with Development of Retail Distribution Channel
The Company distributes its products through distributors, major
computer and software retailers, consumer electronic stores, discount warehouse
stores and other specialty retailers. The Company often sells on a purchase
order basis, and there are often no minimum purchase obligations on behalf of
any distributor or retailer. Distribution and retailing companies in the
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computer industry have from time to time experienced significant fluctuations in
their businesses, and there have been a number of business failures among these
entities. The insolvency or business failure of any significant distributor or
retailer of the Company's products could have a material adverse affect on the
Company's business, operating results and financial condition. Further, certain
mass-market retailers have established exclusive relationships under which such
retailers will buy customer software only from one or two intermediaries. In
such instances, because of the price or other terms imposed by such
intermediaries, the Company may be unable to market its products through such
retailers on the terms that the Company deems acceptable.
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
consumer software producers for adequate levels of shelf space and promotional
support for retailers. The Company expects that as the number of consumer
multimedia products increases this competition for shelf space and in-store
marketing attention will intensify. Due to increased competition for limited
shelf space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts, price protection
and product return policies. Retailers often require multimedia publishers to
pay fees or provide other accommodations in exchange for shelf space. The
Company's products constitute a relatively small percentage of each retailer's
sales volume, and there can be no assurance that retailers will continue to
purchase the Company's products or provide the Company's products with adequate
shelf space and promotional support.
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 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.
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
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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.
Risks Associated with International Expansion
A component of the Company's strategy is its planned expansion into
international markets. To date, the Company has no experience in marketing and
distributing its products internationally. There can be no assurance that the
Company will be able to successfully market, sell and deliver its products in
these markets. In addition, there are certain risks inherent in doing business
in international markets such as unexpected changes in regulatory requirements,
export restrictions, export controls, tariffs and other barriers, political
instability, fluctuations in currency exchange rates and potentially adverse tax
consequences, which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition or operating results.
In addition, while U.S. and Canadian copyright law, international
conventions and international treaties may provide meaningful protection against
unauthorized duplication of software, the laws of some foreign jurisdictions may
not protect proprietary rights to the same extent as the laws of Canada or the
United States. Software piracy has been, and can be expected to be, a persistent
problem for the software industry. Although to date the Company has not
experienced any of the foregoing factors to any significant extent, there can be
no assurance that these factors will not be experienced by the Company in the
future.
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 maintain 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
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information that the Company regards as proprietary. Policing
unauthorized use of the Company's products 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.
The Company is not aware that its products are infringing any
proprietary rights of third parties. However, on June 9, 1997 the Company
received a letter from counsel to Laser Media Inc. ("LM") claiming that LM owns
a federal trademark registration for the mark "Lasermedia" and alleging that the
Company's use of the mark "Lasermedia" in its Internet domain name constitutes
an infringement of LM's trademark rights. LM is located in Los Angeles,
California. LM demands that the Company immediately cease using the name and
mark "Lasermedia". The Company has confirmed that LM owns federal trademark
registrations for the mark "Lasermedia" and for several other marks using the
term "Lasermedia". The Company responded to LM by offering to change its domain
name. However, LM has instituted a compliant procedure with Network Solutions.
Network Solutions, under the authority of the Depar(TM)ent of Defense, assigns
Internet domain names on a first-come, first-serve basis. If there is a
conflict, Network Solutions can suspend the use of the name. It has no authority
to impose any other legal remedy. The Company has offered a compromise to share
the "Lasermedia" domain name with differentiations and cross-references. LM has
declined this solution. The Company intends to continue to seek an amicable
compromise of this matter.The Company has filed trademark applications in both
the U.S. and Canada for "LaserMedia". There can be no assurance, however, that
third parties will not claim infringement by the Company of their intellectual
property rights. The Company expects that multimedia product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, and cause product shipment delays.
In addition, such claims could require the Company to cease the manufacture, use
and sale of allegedly infringing products, and to incur significant costs and
expenses to develop non-infringing products or to obtain licenses. There can be
no assurance that the Company would be able to develop alternative products or
to obtain such licenses or, if a license were obtainable, that the terms would
be commercially acceptable to the Company. In the event of a successful claim of
product infringement against the Company and failure or inability of the Company
to license the infringed or similar technology, the Company's business,
operating results and financial condition would be materially adversely
affected.
Dependence on Key Personnel
The Company believes that its future success will depend in large part
upon the services of its President Erik Schannen. Mr. Schannen's employment
agreement with the Company is for
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five year term which began June 27, 1997. At the end of this five year
term, Mr. Schannen has the option to renew the employment agreement for a
further term of five years upon the same terms and conditions. However, the
Company currently has no key-man insurance for Erik Schannen. There can be no
assurance that other persons of similar talent would be available to the Company
if Mr. Schannen was not available.
Management of Growth
The Company is currently experiencing rapid growth and expansion, which
has placed, and will continue to place, a significant strain on its
administrative, operational and financial resources, and increased demands on
its systems and controls. This growth has resulted in a continuing increase in
the level of responsibility for both existing and new management personnel. The
Company anticipates that its continued growth will require it to recruit, hire,
train and retain a substantial number of computer consultants, managers, and
sales and marketing personnel. The Company's ability to manage its growth
successfully will also require the Company to continue to expand and improve its
operating, management and financial systems and controls on a timely basis.
There can be no assurance that the Company will be able to manage this growth
effectively, and if unable, to do so, the Company's business, operating results
and financial condition will be materially adversely affected.
Manufacturing Risks
The Company's products are manufactured by unaffiliated third parties
in accordance with the Company's specifications. While the Company to date has
not experienced any material delays or interruptions in the manufacture of the
Company's products, there can be no assurance that such delays or interruptions
will not occur or, if any do occur, that they could be remediated without
further delay and without materially and adversely affecting the Company's
business, operating results or financial condition. Unanticipated delays in
receipt of shipments or price increases from any of the Company's contract
manufacturing sources could adversely affect the Company's business.
Product Liability
Although the Company has not experienced any product liability claims,
the sale and support of products by the Company entails the risk of such claims.
The Company currently maintains product liability insurance and is required to
maintain same according to its various distribution agreements. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.
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Dividends
It is the current policy of the Company's board of directors to retain
any earnings to finance the operations and expansion of the Company's business.
The Company's loan agreement with Cune Management Inc. prohibits the declaration
or payment of cash dividends. Therefore, the payment of any cash dividends on
the common shares is unlikely in the foreseeable future.
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 on
the Canadian Dealer Network on the over-the-counter market. The public float is
approximately 3,000,000 common shares. Broad market fluctuations may materially
adversely affect the market price of the common shares.
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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.
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.
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ITEM 3. LEGAL PROCEEDINGS
Trademark Claims
On June 9, 1997 the Company received a letter from Laser Media Inc.
("LM") of Los Angeles, California which requested that the Company cease and
desist using the domain name "Lasermedia" on the Internet. The Company offered
to change its domain name. However, LM chose to institute a compliant procedure
with Network Solutions ("Network Solutions"). Network Solutions, under the
authority of the Depar(TM)ent of Defense, assigns Internet domain names on a
first-come, first-serve basis. If there is a conflict, Network Solutions can
suspend the use of the name. It has no authority to impose any other legal
remedy. The Company has offered a compromise to share the "Lasermedia" domain
name with differentiations and cross-references. LM has declined this solution.
The Company intends to continue to seek an amicable compromise of this matter.
The Company has filed trademark applications in both the U.S. and Canada for
"LaserMedia."
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ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of January 29, 1998 by (i)
all stockholders known by the Company to be beneficial owners of more than 10%
of the outstanding common stock, and (ii) all executive officers and directors
of the Company as a group.
IDENTITY OF SHARES
PERSON OR GROUP OWNED PERCENT
--------------- ------ -------
Schannen, Erik 3,500,000 26.9%
Lasermedia Communications
Corp., 11 Charlotte Street,
Toronto, Ontario M5V 2H5
All directors and officers 3,530,000 27.1%
as a group (4 persons)
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.
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ITEM 5. NATURE OF TRADING MARKET
Trading History; Dividends
On August 14, 1997 the common shares of the Company commenced trading
and quotation on the Canadian Dealing Network Inc. ("CDN"), the over-the-counter
market in Ontario. The common shares are quoted on CDN under the trading symbol
"LMCD". The common shares of the Company are not traded on any United States
market. The following table presents the low and high trading ranges and average
weekly trading volume of the common stock of the Company (in Canadian dollars)
during the third quarter and fourth quarter of fiscal 1997:
FISCAL AVG. WEEKLY
QUARTER LOW HIGH VOLUME
------- --- ---- -----------
August 14 - September 30, 1997 CDN$1.45 CDN$1.70 267,803
October 1 - December 31, 1997 CDN$0.80 CDN$1.75 187,105
January 1, 1998 - March 31, 1998 CDN$0.75 CDN$1.85 1,251,980
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.
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 approximately 99,500 common shares are owned
of record by 12 persons resident in the United States.
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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. Any such remittances, however, are subject to
withholding tax.
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 Inves(TM)ent Canada Act (Canada) (the "Inves(TM)ent Canada Act"). The
following summarizes the principal features of the Inves(TM)ent Canada Act.
The Inves(TM)ent Canada Act requires certain "non-Canadian" (as defined
in the Inves(TM)ent Canada Act) individuals, governments, corporations and
other entities who wish to acquire control of a "Canadian business" (as defined
in the Inves(TM)ent Canada Act) to file either a notification or an application
for review with the Director of Inves(TM)ents appointed under the Inves(TM)ent
Canada Act. The Inves(TM)ent 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 Inves(TM)ent 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
Inves(TM)ent 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 Inves(TM)ent Canada Act. The
Inves(TM)ent 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 Inves(TM)ent 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 Inves(TM)ent Canada Act could result in, among other
things, a court order directing the disposition of assets or shares.
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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 of
Canada and the regulations thereunder (collectively, the "Tax Act, or ITA") and
the Canada-United States Tax Convention as amended by the Protocols thereto (the
"Tax Convention") as at the date of the Registration Statement and the current
administrative practice of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account Canadian provincial income tax consequences.
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 Inves(TM)ent 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 Inves(TM)ent Act).
Under the Inves(TM)ent Canada Act, as amended, an inves(TM)ent in the
Registrant's common shares by an American would be reviewable only if it was an
inves(TM)ent to acquire control of the Registrant and the value of the assets of
the Registrant 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 Inves(TM)ent 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
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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), 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.
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.
Dividend
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 pending ratification of the Protocol amending the
treaty; the Protocol has been ratified by the USA and is awaiting ratification
in Canada). 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 ITA 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
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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.
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ITEM 8. SELECTED FINANCIAL DATA
The following tables provide a summary of certain financial information
for fiscal years 1994 through 1996, and for the nine months ended September 30,
1997. The selected financial data set forth below as of December 31, 1996, 1995
and 1994 (audited), and September 30, 1997 and 1996 (unaudited) have been
derived from the Company's financial statements which were prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"), which are different in some respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). See the reconciliation footnote
set forth in Note 8 to the Financial Statements appearing under Item 19 hereof.
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".
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LASERMEDIA COMMUNICATIONS CORP.
BALANCE SHEET DATA (CANADIAN GAAP)
BALANCE SHEET COMBINED BALANCE SHEETS
(UNAUDITED)1 AS OF DECEMBER 31 2
AS OF SEPTEMBER 30, 1997 1996 1995
------------------------ ---- ----
ASSETS
CURRENT
Cash CDN$1,711,032 CDN$ 28,966 CDN$1,870
Accounts receivable 392,796 132,929 183,748
Allowance for uncollectable receivables -- -- --
Subscriptions receivable 14,900 -- --
Inventory 56,187 6,393 --
Prepaid expenses and sundry assets 75,415 -- 9,857
Due from related companies 489,188 -- --
Loans receivable -- -- 16,069
------------- ----------- -----------
2,739,518 168,288 211,544
CAPITAL ASSETS (Note 2) 568,149 115,011 90,920
PRODUCT DEVELOPMENT COSTS 414,609 288,269 181,405
GOODWILL 507,791 1 --
------------- ----------- -----------
TOTAL ASSETS CDN$4,230,067 CDN$571,569 CDN$483,869
============= =========== ===========
LIABILITIES
CURRENT
Bank loan CDN$195,833 CDN$ -- CDN$ --
Accounts payable and accrued liabilities 537,318 129,834 173,871
Loan payable (Note 3) 17,500 10,000 10,000
Current portion of long term debt 6,310 17,246 13,243
------------- ----------- -----------
756,961 157,080 197,114
------------- ----------- -----------
LONG TERM DEBT (Note 4) 79,374 5,877 23,123
DUE TO RELATED COMPANIES (Note 5) -- 291,786 --
------------- ----------- -----------
DEFERRED INCOME TAXES CDN$940,335 CDN$526,743 CDN$265,637
------------- ----------- -----------
CDN$104,000 CDN$ 72,000 CDN$ 45,400
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 6) -- -- --
Preferred Stock, no par value per share; 2,000,000
voting preferred shares authorized; no shares
issued and outstanding. 3
Common Stock, no par value per share; unlimited
shares of common stock authorized; 12,978,344
issued and outstanding.
PAID IN CAPITAL 3,036,403 99,296 2
RETAINED EARNINGS (DEFICIT) 253,329 (54,470) 218,230
------------- ----------- -----------
3,289,732 44,826 218,232
------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY CDN$4,230,067 CDN$571,569 CDN$483,869
============= =========== ===========
1. The unaudited statement of operations for the nine month period ended
September 30, 1997 give effect to a reverse takeover acquisition using the
purchase method of accounting. The consolidated financial statement
represents a continuation of the financial statements of the wholly-owned
subsidiary, Lasermedia. The only other subsidiary of the Company, Verisim,
has not as yet generated revenue.
2. The selected data as of and for the years ended December 31, 1996 and 1995
are derived from the audited financial statements of the Company. The
combined financial statements include Laserset Graphics Inc., which was
acquired by Lasermedia in the fourth quarter of 1997 and was subsequently
amalgamated on December 31, 1997. The figures for September 30, 1997 only
relate to Lasermedia, a subsidiary of the Company. The only other
subsidiary of the Company, Verisim, has not as yet generated revenue.
3. The number of preference shares that can be issued by the Company at any
one time is limited to 500,000.
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LASERMEDIA COMMUNICATIONS CORP.
STATEMENT OF OPERATIONS DATA (CANADIAN GAAP)
STATEMENTS OF
OPERATIONS (UNAUDITED) 1
AS OF COMBINED STATEMENTS OF OPERATIONS
SEPTEMBER 30 AS OF DECEMBER 31 2
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
SALES CDN$2,285,325 CDN$287,366 CDN$659,617 CDN$583,048 CDN$481,462
COST OF SALES 269,532 202,280 449,181 323,009 217,649
---------- ----------- ----------- --------- ----------
GROSS MARGIN 2,015,793 85,086 210,436 260,039 263,813
---------- ----------- ----------- --------- ----------
EXPENSES
Selling costs 287,352 53,245 70,993 11,069 --
General and administrative3 1,192,385 93,549 214,664 110,963 129,852
Research and development 41,338 -- 69,402 28,918 --
---------- ----------- ----------- --------- ----------
1,521,075 146,794 355,059 150,950 129,852
---------- ----------- ----------- --------- ----------
Income (loss) before income taxes 494,718 (61,708) (144,623) 109,089 133,961
---------- ----------- ----------- --------- ----------
Provision for (recovery of) income
taxes
- current 127,000 -- (15,400) 9,600 5,800
- deferred 32,000 -- 26,600 18,400 27,000
- reduction due to application of
losses (82,800) -- -- -- --
---------- ----------- ----------- --------- ----------
76,200 -- 11,200 28,000 32,800
---------- ----------- ----------- --------- ----------
NET INCOME (LOSS) $ 418,518 $ (61,708) $ (155,823) $ 81,089 $ 101,161
========== =========== =========== ========= ==========
NUMBER OF SHARES ISSUED 12,978,344 7,000,000
========== ===========
BASIC EARNINGS (LOSS) PER SHARE CDN$0.04 CDN$(0.01)
1 The unaudited statement of operations for the nine month period ended
September 30, 1997 and 1996 give effect to a reverse acquisition
transaction using the purchase method of accounting. These consolidated
financial statements represent a continuation of the financial statements
of the wholly-owned subsidiary, Lasermedia. The only other subsidiary of
the Company, Verisim, has not as yet generated revenue.
2 The selected data as of and for the years ended December 31, 1996, 1995
and 1994 are derived from the audited financial statements of the Company.
The combined financial statements include Laserset Graphics Inc., which
was acquired by Lasermedia in the fourth quarter of 1997 and was
subsequently amalgamated on December 31, 1997. The comparative figures for
September 30, 1997 and 1996 only relate to Lasermedia, a subsidiary of the
Company. The only other subsidiary of the Company, Verisim, has not as yet
generated revenue.
3 The Company issued 1,850,000 shares of common stock in lieu of consulting
services performed having a fair market value of C$462,500 which is
included in this figure.
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ITEM 9. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
OPERATING RESULTS FOR LASERMEDIA
Discussion of Operations
Nine Month Period Ended September 30, 1997
For the nine months ended September 30, 1997, the Company recognized
net income of CDN$494,718 compared to a net loss of CDN$61,708 for the nine
month period ended September 30, 1996. The increase in income is attributable to
the sale by the Company of its Active Trainer(TM) family of software to Softech
L.P. for CDN$1,950,000. Excluding this transaction, the Company would have
incurred a CDN$1,455,282 loss during the nine month period.
Product sales during the nine month period ended September 30, 1997
increased by approximately CDN$48,000 to CDN$335,325 from CDN$287,366 for the
comparable period of 1996. This increase is attributed to higher unit sales
which have resulted from enhanced product distribution. Costs of sales increased
approximately CDN$60,000 during the nine month period over the costs of sales
for the nine month period ended September 30, 1996. Thus, the gross margin on
product sales decreased during this nine month period by approximately
CDN$19,300, from CDN$85,086 in 1996 (29% of product sales) to $65,793 in 1997
(19.6% of product sales). The Company anticipates that at least until it has
paid to Softech L.P. the sum of CON$1,950,000, the obligation to purchase
products from and pay royalties to Softech L.P. will adversely impact the
Company's cost of sales and gross sales margin. In 1997, costs of sales
included CDN$76,000 of advertising costs, and payments to Softech L.P.
Currently, in excess of 90% of the Company's revenue is derived from
product sales in the U.S. The Company also sells products in Canada,
Australia, England and Italy. The sales in Australia, England and Italy are to
customers who pay cash on delivery.
The company's research and development expenditures are primarily to
develop on-line gaming through Verisim, to upgrade current products and
develop new products.
During the nine months ended September 30, 1997, the Company's staff
increased from 7 to 35 employees. This resulted in an increase of approximately
623% of office and general expenses over office and general expenses during the
nine months ended September 30, 1996. Consulting fees during the nine month
period included the value of shares of stock issued to consultants in the
formation of the Company. Sales and marketing fees increased approximately 440%
over sales and marketing fees during the nine months ended September 30, 1996,
as a result of advance payments to distributors, increased product distribution
and greater advertising and promotion costs.
Fiscal Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
For the year ended December 31, 1996, the Company had sales of
CDN$659,617 compared to sales of CDN$583,048 for the period ended December 31,
1995. This was an increase of 13%. This increase is attributable to higher unit
sales of Active Trainer(TM). Cost of sales for the period of CDN$449,181
increased by CDN$126,172 or 39% compared to CDN$323,009 due to increase in unit
sales and development costs. This resulted in gross margins declining from
44.5% of sales in fiscal year 1995 to 31.9% of sales in fiscal year 1996.
Expenses of CDN$355,059 increased by 135% (CDN$204,109) largely because of
increased wages and benefit costs, higher costs associated with expanded
participation in various trade shows, and higher office and general expenses.
During this period, the Company experienced a net loss of CDN$144,623
compared to a profit of CDN$109,089 for the period ended December 31, 1995.
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Fiscal Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
For the year ended December 31, 1995, the Company had sales of
CDN$583,048 compared to sales of CDN$481,462 for the period ended December 31,
1994. This increase of 21% is attributable to the commencement of Active
Trainer(TM) sales. Cost of sales for the period of CDN$323,009 increased by
CDN$105,360 or 48% compared to CDN$217,649. Expenses of CDN$150,950 increased by
16% (CDN$21,098) largely because of higher professional fees, advertising and
promotion expenses and telephone costs. A lower bad debt experience (CDN$821
compared to CDN$20,657) was offset by higher amortization expenses (CDN$58,382
compared to CDN$29,884).
During this period, the Company experienced net income of CDN$109,089
compared to net income of CDN$133,961 for the period ended December 31, 1994.
Liquidity and Capital Resources
The Company's principal working capital needs are for the production,
carrying and marketing of products, developing and acquiring new products, and
maintaining and updating its Internet website. Through December 31, 1996, the
Company funded its operations with cash from operations, capital from stock
sales and advances from affiliates. During the nine months ended September 30,
1997, the Company funded its operations from product sales, sale of the Active
Trainer((TM)) family of software, capital from stock sales, and borrowings from
commercial sources.
As of September 30, 1997, the Company had net working capital of
CDN$2,027,144 of which CDN$1,711,032 was represented by cash. Working capital
was provided primarily from the sale of the Active Trainer(TM) family of
software to Softech L.P., an unaffiliated limited partnership, for
CDN$1,950,000. Working capital was also provided by product sales as well as
loans from the Ontario Film Development Corporation and another unrelated third
party. The loan from the Ontario Film Development Corporation is unsecured and
non-interest bearing. The loan had a $10,000 balance as of September 30, 1997.
The loan from another unrelated party is unsecured, bears interest at 7% per
annum, and is due on demand. The loan had a $7,500 balance as of September 30,
1997.
During the first quarter of 1997, the Company settled its CDN$40,000
debt to one of its shareholders, Cune Management Limited, a financial consulting
firm. The loan from Cune Management Limited was non-interest bearing and there
is no reconciling disclosure with respect to U.S. GAAP with regard to the
recognition of the fair value of interest expense since it is not material.
However, on September 18, 1997, the Company agreed to loan Cune Management Inc.,
from time to time, the principal sum, in the aggregate of up to CDN$250,000. The
loan bears interest at the rate of 12% per annum. Cune Management Inc. may repay
the loan from time to time in whole or in part without penalty, notice or bonus.
The loan is scheduled to mature on September 18, 1998. Cune Management Inc.
created a security interest in its shares of the Company's common stock for the
benefit of the Company as security for the loan. The Company entered into the
loan agreement with Cune Management Inc. for investment purposes. As of
January 29, 1998, Cune Management Inc. held 250,149 shares of the Company's
common stock
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as well as Warrants to purchase 150,000 shares of the Company, which are
exercisable at any time through March 31, 2002.
During the fourth quarter of 1996, the Company settled its CDN$251,786
debt to Laserset Graphics Inc., which was acquired by Lasermedia in the fourth
quarter of 1997 and was subsequently amalgamated on December 31, 1997.
The Company is in repayment under a loan agreement with the Bank of
Nova Scotia. The loan proceeds were used to finance leasehold improvements. The
loan bears interest at an annual rate equal to the bank's prime rate plus 2.5%,
is due on demand, and is secured by a general security agreement encumbering all
of the Company's assets. The loan balance was $195,000 as of September 30, 1997.
The Company is currently negotiating to obtain a $300,000 line of credit from
the Bank of Nova Scotia.
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.
The Company's products generally retail at approximately US$45.00 and
wholesale at US$30.00 with a cost to the Company of 7.00 (US$5.00) exclusive of
research and development costs and fees payable to Softech, L.P.
The Company believes that the technology it is developing has broad
uses beyond the Company's products and services. Accordingly, as an integral
part of its business, the Company intends to enter into license, royalty, use,
license/leaseback and similar transactions to enhance its revenue. The sale of
the Active Trainer(TM) family of software is the first of these types of
transactions that the Company hopes to undertake to realize upon the value of
its technology. Lasermedia is the exclusive reseller of the Active Trainer(TM)
family of software and pays a royalty to Softech L.P. equal to 70% of the gross
receipts from the sale of Active products minus certain costs such as the cost
of purchasing Active products from Softech L.P., costs of goods sold (e.g.
shipping, duties and taxes, packaging, manufacturing), general administrative
costs (e.g. insurance, copyrights and patents, defense of copyrights and
patents, translations), advertising and marketing costs, and up to CDN$50,000 in
employment costs. After Softech L.P. has been paid CDN$1,950,000, Softech L.P.'s
royalty rate declines to 30%. As of March 31, 1998, Lasermedia has paid $250,000
to Softech L.P. Lasermedia is obligated to purchase a minimum of CDN$62,500
worth of Active product units for each fiscal quarter in 1998. Lasermedia has
not yet achieved sales in excess of the minimum guarantee. The units are subject
to declining prices ranging from CDN$8.00 per unit for the first 100,000 units
to CDN$3.25 per unit after 750,000
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units have been purchased. Lasermedia entered into the sale and license-back
transaction with Softech L.P. to accelerate realization of value of technology
developed by Lasermedia, which, because of technological advances, could have
limited long term proprietary value. The Company plans to engage in a number of
sale and license-back transactions with other new software technology it
develops. Proceeds from the sale of software technology will be used to defray
operating expenses and to support research and development. Approximately $1
million of the CDN$1,950,000 received by Lasermedia from the sale of the Active
Trainer((TM)) family of software was allocated to research and development.
In connection with the sale and leaseback transaction, Lasermedia
issued to Softech L.P. a Series E Warrant to purchase 2,866,666 shares of
Lasermedia's common stock at an exercise price of CDN$0.75 per share. The Series
E Warrant is scheduled to expire, unless sooner exercised, in March 2002.
Softech L.P. distributed the Series E Warrant to its partners.
Year 2000
All of the Company's products, programs, services, and other computer
equipment are year 2000 compliant. The Company is completing a preliminary
assessment of year 2000 issues faced by its suppliers and major customers. Based
on a preliminary assessment, the Company does not believe that the year 2000
issue will have a material adverse effect on the Company's results of operations
and financial condition.
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. Currently in
excess of 90% of the Company's revenue is derived from sales in the U.S. The
Company's costs are generally paid in Canadian dollars. As the Canadian dollar
is depressed in comparison to the U.S. 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 three fiscal years.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive
officers and directors of the Company:
NAME AGE OFFICE
Erik Schannen 30 President and Director
Brian Gibson 41 Chief Operating Officer, Chief
Financial Officer
Gordon Cowie 60 Director
Samuel Paul 64 Secretary and Director
The Company's by-laws provide for a board consisting of five 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 on the board in the foreseeable future.
BUSINESS EXPERIENCE
Mr. Schannen co-founded and has been the President of Lasermedia since
1994. Mr. Schannen has been involved in the computer graphics and software field
for the past 12 years. Before founding Lasermedia, for seven years he was a
principal of Laserset Graphics Inc., a graphic design company which was acquired
by Lasermedia in the fourth quarter of 1997 and was subsequently amalgamated
into Lasermedia on December 31, 1997. Mr. Schannen has a comprehensive knowledge
of the industry, the technology and is able to program in several computer
languages. He is currently an active member of IMAT, the International
Multimedia Developers Association, and the Apple Multimedia Program; and is
teaching a program in CD- ROM Publishing and Development at the Learning Annex
(a major Toronto-based adult education facility).
Mr. Gibson has been the Chief Operating Officer and the Chief Financial
Officer of the Company since September 4, 1997. For more than five years before
joining the Company, he served as a co-founder and principal of Information
Systems Architects Inc., a software consulting firm. As Chief Operating Officer
(COO), Mr. Gibson is responsible for overseeing the management of the Company.
Mr. Gibson is also the Chief Financial Officer. He attained his Chartered
Accountancy designation with Coopers & Lybrand in 1982.
Mr. Cowie has been a director of the Company since December 5, 1997. He
has been a retired civil engineer since 1994. From 1990 to 1993, he was a
self-employed engineer and worked on a number of projects including providing
litigation support services, assisting in certain design aspects for industrial
buildings in Toronto and preparing plans for residential sub-divisions. He has
over 30 years experience in various engineering projects in Canada and Saudi
Arabia.
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Mr. Paul has served as a director of the Company since February 14,
1997. He has served as the Chief Financial Officer of American Entertainment
Group Inc. since 1993. From 1962 to 1993, Mr. Paul served as a founding member
of the firm of Paul and Paul, Chartered Accountants, which specialized in
financial and consulting services to small and medium sized businesses.
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ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth certain summary information concerning
the compensation awarded to, earned by, or paid to Erik Schannen, an officer and
director of the company during fiscal 1996. Compensation was not paid to any
other director or officer during 1996.
ANNUAL COMPENSATION LONG TERM COMPENSATION
NAME AND OTHER SECURITIES SHARES OR
PRINCIPAL ANNUAL UNDER RESTRICTED LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTION SHARE UNITS PAYOUTS COMPENSATION
-------- ---- ------ ----- ------------ ------ ----------- ------- ------------
Erik Schannen 1996 $15,196 $ - $ 18,150 Nil Nil N/A Nil
President
During fiscal 1996, no funds were set aside or accrued by the Company
to provide pension, retirement or similar benefits for directors or executive
officers.
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ITEM 12. OPTIONS TO PURCHASE SECURITIES
1997 Stock Option Plan
On June 27, 1997, the Company adopted an equity incentive plan (the
"1997 Stock Option Plan"). Under the 1997 Stock Option Plan the Company may
grant stock options to directors, officers, key employees, consultants and
advisors to allow them to participate in the ownership and growth of the
Company. The Board of Directors has discretion, within the limits of the 1997
Stock Option Plan and subject to the approval of such regulatory authorities as
may have jurisdiction, to designate recipients, amounts, exercise prices and
other terms and conditions of the stock options. At no time shall the number of
shares reserved for issuance to any one person under the 1997 Stock Option Plan
or otherwise exceed five (5%) percent of the outstanding shares. There are
1,029,000 shares of common stock reserved for issuance under the Plan. To date,
4,750 common shares have been issued upon exercise of options granted under this
Plan.
Under the 1997 Stock Option Plan, the full purchase price payable under
the option shall be paid in cash upon the exercise thereof. Options may not be
granted for a period exceeding ten (10) years.
Under the 1997 Stock Option Plan, all options will terminate 30 days
following the termination of the optionee's employment or other relationship
with the Company. In the case of death or permanent and total disability of the
optionee, his or her options will terminate six months following the death or
permanent and total disability of the optionee.
In the event the common shares are exchanged for securities, cash or
other property of any other corporation or entity as the result of a
reorganization, merger or consolidation in which the Company is not the
surviving corporation, the dissolution or liquidation of the Company, or the
sale of all or substantially all the assets of the Company, the board of
directors of any successor corporation or entity may, in its discretion, as to
outstanding options: (a) accelerate the exercise date or dates of such options;
(b) upon written notice to the holders thereof, provided the options have
accelerated pursuant to item (a) above, terminate all such options prior to
consummation of the transaction unless exercised within a prescribed period; (c)
provide for payment of an amount equal to the excess of the market price of the
common stock over the option price of the option shares as of the date of the
transaction, in exchange for the surrender of the right to exercise such
options; or (d) provide for the assumption of such options, or the substitution
therefor of new options, by the successor corporation or entity. At February 2,
1998, a total of 37 persons held
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options to purchase 1,039,000 shares of the Company common stock at exercise
prices ranging from CDN$0.90 to CDN$2.00 per share.
Executive Option Holders
The following table lists options held by officers and directors of the
Company.
Name of Options Exercise
Option Holder Position Outstanding Price
Erik Schannen President 150,000 CDN $1.00
100,000 1.50
Brian Gibson Chief Operating Officer 170,000 CDN $0.90
Chief Financial Officer
Samuel Paul Director 10,000 CDN $1.50
Gordon Cowie Director 10,000 CDN $1.25
------
All executive
officers and
directors (4 persons) 440,000
=======
Employee Stock Purchase Plan
On July 24, 1995 the Company established an Employee Stock Purchase
Plan to facilitate the purchase of shares of the Company by employees, through
payroll deductions, loans, guarantees or otherwise.
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 at any time on or before
March 31, 2002. The Company has six series of Warrants issued and outstanding,
all of which feature the same terms and conditions but have varying exercise
prices. All series of warrants were issued in connection with the acquisition of
Lasermedia to warrantholders of that company. A total of 2,931,468 shares of
common stock are reserved for issuance upon exercise of the Warrants. Through
January 15, 1998, 1,035,198 warrants have been exercised and 1,035,198 shares of
common stock have been issued in connection with the exercise thereof.
No fractional Shares shall be issued upon exercise of any Warrants and
no payments or adjus(TM)ents 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
43
46
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 adjus(TM)ent 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 adjus(TM)ent if and when the Company issues shares of common stock
to its stockholders at a price less than the fair market value.
44
47
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Share Purchase Agreements for Laserset Graphics Inc.
On October 16, 1997, Lasermedia, a subsidiary of the Company, acquired
Erik Schannen's 50% interest in Laserset Graphics Inc. through the purchase of
100 shares of capital stock for CDN$100,000. Laserset Graphics Inc. is engaged
in the business of computer design for industry. Mr. Schannen was the President,
CEO and a Director of Lasermedia and was a founder and President of Laserset
Graphics Inc. On November 19, 1997, Lasermedia acquired Cune Management's 50%
interest in Laserset Graphics Inc. through the purchase of 100 shares of capital
stock for CDN$100,000. Cune Management is currently a borrower of the Company
(see below). On December 31, 1997, Laserset Graphics Inc. amalgamated (merged)
into Lasermedia
Term Loan Agreement dated September 18, 1997
The Company agreed to loan Cune Management Inc., from time to time, the
principal sum, in the aggregate of up to CDN$250,000. The loan bears interest at
the rate of 12% per annum. Cune Management Inc. may repay the loan from time to
time in whole or in part without penalty, notice or bonus. The loan is scheduled
to mature on September 18, 1998. Cune Management Inc. created a security
interest in its shares of the Company's common stock for the benefit of the
Company as security for the loan.
Cune Management Inc. owns warrants to purchase 150,000 shares of the
Company, which are exercisable at any time through March 31, 2002. Cune
Management Inc. also holds 250,149 shares of the Company's common stock.
Acquisition of Lasermedia on June 27, 1997
The Company acquired all the issued and outstanding common shares and
common share purchase warrants of Lasermedia for a purchase price of
CDN$8,300,000. The purchase price was satisfied by the issuance of 11,033,487
common shares, 600,000 Series A common share purchase warrants, 200,000 Series B
common share purchase warrants, 200,000 Series C common share purchase warrants,
100,000 Series D common share purchase warrants, 2,866,666 Series E common share
purchase warrants and 258,000 Series F common share purchase warrants. Erik
Schannen, the President and a Director of the Company, owned 32.7% of the
Lasermedia shares acquired by the Company. The value of Lasermedia was
determined by an unaffiliated business valuation and litigation support company.
Acquisition of Verisim on May 23, 1997
Lasermedia, a subsidiary of the Company, acquired all of the shares of
capital stock of Verisim from all of its shareholders for a purchase price of
$300,000. The purchase price was satisfied by the issuance of 100,000 shares of
common stock of Lasermedia.
45
48
ITEM 14. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company's authorized capital stock consists of (i) an unlimited
number of shares of common stock, no par value per share, of which 13,025,291
shares were issued and outstanding as of January 30, 1998, and (ii) 2,000,000
shares of preferred stock, of which no shares are currently issued and
outstanding.
Preference Shares
The Company is authorized to issue up to 2,000,000 shares of preference
stock. The preference shares, if issued, will be senior to the common shares in
liquidation, dissolution or winding-up of the Company. Pursuant to the
Certificate of Incorporation of the Company, the Company Board by resolution may
establish one or more series of preference stock having such number of shares,
designation, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as may be fixed by the Company Board without
any further stockholder approval. Such rights, preferences, privileges and
limitations as may be established could have the effect of impeding the
acquisition of control of the Company. There are no shares of preference stock
issued and outstanding.
Common Shares
Each Common Share is entitled to one vote on all matters presented to
the shareholders, is entitled to dividends as and when declared by the directors
of the Company and is entitled upon liquidation, dissolution or winding-up to a
pro rata share of the assets of the Company distributable to the holders of
common shares. The common shares carry no conversion or pre-emptive rights. The
Company is authorized to issue an unlimited number of common shares. At
January 30, 1998, there were 13,025,291 common shares, no par value per share,
issued and outstanding.
There are no restrictions on the repurchase or redemption of common
shares of the Company while there is any arrearage in the payment of dividends
or sinking fund installments.
Warrants
The Warrants entitle the holder, subject to the terms and conditions
set forth in the Warrant Certificate, to purchase from the Company in exchange
for each Warrant, one common share of the Company the applicable exercise price
at any time on or before March 31, 2002. The Company has six series of Warrants
issued and outstanding, all of which feature the same terms and conditions but
have varying exercise prices. All series of warrants were issued in connection
with the acquisition of Lasermedia to warrantholders of that company. A total of
2,931,468 shares of common stock are reserved for issuance. Through January 15,
1998, 1,035,198 warrants have been exercised and 1,035,198 shares of common
stock have been issued in connection with the exercise thereof.
46
49
No fractional Shares shall be issued upon exercise of any Warrants and
no payments or adjus(TM)ents 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 adjus(TM)ent 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 adjus(TM)ent if and when the Company issues shares of common stock
to its stockholders at a price less than the fair market value.
47
50
ITEMS 15-17. NOT REQUIRED
Items 15-16 are not required for registration statements. The Company
chose to provide the financial statements specified in Item 18 in lieu of Item
17.
48
51
ITEM 18. FINANCIAL STATEMENTS
PAGE NO.
--------
Index to Financial Statements and Supplementary Data............................................................F-1
Reports of Independent Accountants..............................................................................F-2
Balance Sheets of the Company (Unaudited) as of
September 30, 1997 and (Audited) as of December 31, 1996 and 1995...............................................F-4
Statements of Operations of the Company (Unaudited) as of
September 30, 1997 and (Audited) for the Three Years Ended
December 31, 1996, 1995 and 1994................................................................................F-5
Statements of Cash Flows of the Company (Unaudited) as of September 30, 1997 and
(Audited) for the Three Years Ended
December 31, 1996, 1995 and 1994................................................................................F-6
Statements of Retained Earnings (Deficit) of the Company
(Audited) for the Three Years Ended (Unaudited) as of
September 30, 1997 and December 31, 1996, 1995 and 1994.........................................................F-7
Notes to Combined Financial Statements for Years Ended
December 31, 1996, 1995 and 1994................................................................................F-8
Supplemental Notes.............................................................................................F-14
Pro Forma Consolidated Balance Sheets as of January 1, 1997....................................................F-17
F-1
52
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Partners of LASERMEDIA INC., ET AL.
We have audited the combined balance sheets of LASERMEDIA INC. ET AL as
at December 31, 1996, 1995 and 1994 and the combined statements of operations,
retained earnings and changes in financial position for the years then ended.
These financial statements are the responsibility of the Company's management
(See Note 1). Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with 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 combined financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996, 1995 and 1994 and the results of its operations and the changes in its
financial position for the years then ended in accordance with generally
accepted accounting principles.
/s/ Silver Gold Glatt & Grossman
---------------------------------
Chartered Accountants
Toronto, Ontario
March 25, 1997
F-2
53
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Partners of OSGOODE HOLDINGS INC.
We have reviewed, as to compilation only, the accompanying pro-forma
consolidated balance sheet of Lasermedia Communications Corp. as at January 1,
1997 prepared for inclusion in the Osgoode Holdings Inc.'s management
information circular dated May 23, 1997 relating to the offer by Osgoode
Holdings Inc. to acquire all of the common shares and warrants of Lasermedia
Inc., et al.
In our opinion, the pro-forma balance sheet has been properly compiled
to give effect to the proposed transactions and the assumptions described in
note 1 thereto.
/s/ Silver Gold Glatt & Grossman
-----------------------------------
Chartered Accountants
Toronto, Ontario
May 23, 1997
F-3
54
LASERMEDIA COMMUNICATIONS CORP.
BALANCE SHEET DATA (CANADIAN GAAP)
BALANCE SHEET COMBINED BALANCE SHEETS
(UNAUDITED)1 AS OF
AS OF DECEMBER 31(2)
SEPTEMBER 30, 1997 1996 1995
------------------ ---- ----
ASSETS
CURRENT
Cash CDN$1,711,032 CDN$ 28,966 CDN$1,870
Accounts receivable 392,796 132,929 183,748
Allowance for uncollectable receivables -- -- --
Subscriptions receivable 14,900 -- --
Inventory 56,187 6,393 --
Prepaid expenses and sundry assets 75,415 -- 9,857
Due from related companies 489,188 -- --
Loans receivable -- -- 16,069
------------- --------------- ---------------
2,739,518 168,288 211,544
CAPITAL ASSETS (Note 2) 568,149 115,011 90,920
PRODUCT DEVELOPMENT COSTS 414,609 288,269 181,405
GOODWILL 507,791 1 --
------------- --------------- ----------------
TOTAL ASSETS CDN$4,230,067 CDN$571,569 CDN$483,869
============= =========== ===========
LIABILITIES
CURRENT
Bank loan CDN$195,833 CDN$ -- CDN$ --
Accounts payable and accrued liabilities 537,318 129,834 173,871
Loan payable (Note 3) 17,500 10,000 10,000
Current portion of long term debt 6,310 17,246 13,243
------------- -------------- ---------------
756,961 157,080 197,114
-------
LONG TERM DEBT (Note 4) 79,374 5,877 23,123
DUE TO RELATED COMPANIES (Note 5) -- 291,786 --
------------- --------------- ----------------
DEFERRED INCOME TAXES CDN$940,335 CDN$526,743 CDN$265,637
----------- ----------- -----------
CDN$104,000 CDN$ 72,000 CDN$ 45,400
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 6) -- -- --
Preferred Stock, no par value per share; 2,000,000
voting preferred shares authorized; no shares
issued and outstanding. 3
Common Stock, no par value per share; unlimited
shares of common stock authorized; 12,978,344
issued and outstanding.
PAID IN CAPITAL 3,036,403 99,296 2
RETAINED EARNINGS (DEFICIT) 253,329 (54,470) 218,230
------- -------- -------
3,289,732 44,826 218,232
--------- ------ -------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY CDN$4,230,067 CDN$571,569 CDN$483,869
============= =========== ===========
- --------
1. The unaudited statement of operations for the nine month period ended
September 30, 1997 give effect to a reverse takeover acquisition using the
purchase method of accounting. The consolidated financial statement
represents a continuation of the financial statements of the wholly-owned
subsidiary, Lasermedia. The only other subsidiary of the Company, Verisim,
has not as yet generated revenue.
2. The selected data as of and for the years ended December 31, 1996 and 1995
are derived from the audited financial statements of the Company. The
combined financial statements include Laserset Graphics Inc., which was
acquired by Lasermedia in the fourth quarter of 1997 and was subsequently
amalgamated on December 31, 1997. The figures for September 30, 1997 only
relate to Lasermedia, a subsidiary of the Company. The only other
subsidiary of the Company, Verisim, has not as yet generated revenue.
3. The number of preference shares that can be issued by the Company at any
one time is limited to 500,000.
F-4
55
LASERMEDIA COMMUNICATIONS CORP.
STATEMENT OF OPERATIONS DATA (CANADIAN GAAP)
STATEMENTS OF
OPERATIONS (UNAUDITED)1 COMBINED STATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30 AS OF DECEMBER 31(2)
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
SALES CDN$2,285,325 CDN$287,366 CDN$659,617 CDN$583,048 CDN$481,462
COST OF SALES 269,532 202,280 449,181 323,009 217,649
------- ------- ------- ------- -------
GROSS MARGIN 2,015,793 85,086 210,436 260,039 263,813
--------- ------- ------- ------- -------
EXPENSES
Selling costs 287,352 53,245 70,993 11,069 --
General and administrative3 1,192,385 93,549 214,664 110,963 129,852
Research and development 41,338 -- 69,402 28,918 --
---------- --------- --------- --------- -------
1,521,075 146,794 355,059 150,950 129,852
--------- ------- ------- ------- -------
Income (loss) before income tax 494,718 (61,708) (144,623) 109,089 133,961
---------- ----------- ---------- --------- ---------
Provision for (recovery of) income
taxes
- current 127,000 -- (15,400) 9,600 5,800
- deferred 32,000 -- 26,600 18,400 27,000
- reduction due to application of
losses (82,800) -- -- -- --
-------- ------ ------- ------ ------
76,200 -- 11,200 28,000 32,800
------- ------ ------- ------ ------
NET INCOME (LOSS) $ 418,518 $ (61,708) $ (155,823) $ 81,089 $ 101,161
========== =========== ============ ========= ==========
NUMBER OF SHARES ISSUED 12,978,344 7,000,000
========== =========
BASIC EARNINGS (LOSS) PER SHARE CDN$0.04 CDN$(0.01)
- --------
1 The unaudited statement of operations for the nine month period ended
September 30, 1997 and 1996 give effect to a reverse acquisition
transaction using the purchase method of accounting. These consolidated
financial statements represent a continuation of the financial statements
of the wholly-owned subsidiary, Lasermedia. The only other subsidiary of
the Company, Verisim, has not as yet generated revenue.
2 The selected data as of and for the years ended December 31, 1996, 1995
and 1994 are derived from the audited financial statements of the Company.
The combined financial statements include Laserset Graphics Inc., which
was acquired by Lasermedia in the fourth quarter of 1997 and was
subsequently amalgamated on December 31, 1997. The comparative figures for
September 30, 1997 and 1996 only relate to Lasermedia, a subsidiary of the
Company. The only other subsidiary of the Company, Verisim, has not as yet
generated revenue.
3 The Company issued 1,850,000 shares of common stock in lieu of consulting
services performed having a fair market value of C$462,500 which is
included in this figure.
F-5
56
LASERMEDIA COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS (CANADIAN GAAP)
STATEMENTS OF
CASH FLOWS (UNAUDITED)
AS OF COMBINED STATEMENTS OF CASH FLOWS
SEPTEMBER 30 AS OF DECEMBER 31
------------ ------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
OPERATING ACTIVITIES
Net income (loss) $418,518 $(61,708) $(155,823) $81,089 $101,161
Adjustment for non-cash items:
Deferred income taxes 32,000 - 26,600 18,400 27,000
Amortization 81,039 5,881 29,411 29,464 29,884
Amortization of product 41,338 -- 69,402 28,918 --
------ ------- ---------- --------- -------
development costs 572,895 (55,827) (30,410) 157,871 158,045
Changes in non-cash operating
assets and liabilities (22,670) 341,961 10,243 (8,833) 33,660
-------- ------- ---------- --------- -----------
CASH PROVIDED BY (EXPENDED IN)
OPERATING ACTIVITIES 595,565 286,134 (20,167) 149,038 191,705
------- ------- -------- ------- ------------
INVESTING ACTIVITIES
Goodwill (548,963) -- 1 -- --
Purchase of capital assets (563,584) (31,963) (53,501) (13,340) (25,165)
Expenditures on product
development costs (309,513) (89,513) (176,266) (99,471) (110,852)
--------- -------- --------- -------- -----------
CASH EXPENDED IN INVESTING ACTIVITIES (1,422,060) (121,476) (229,766) (112,811) (136,017)
----------- --------- --------- --------- -----------
FINANCING ACTIVITIES
Bank loans 281,517 -- -- -- --
Drawings -- -- (116,877) (42,323) (46,895)
Issue of capital stock 2,975,651 -- 99,294 -- 2
Advances to related companies (735,523) (166,001) -- -- --
Advances from related companies -- -- 291,786 -- --
Increase (decrease) in loan payable -- -- (13,243) 20,791 5,599
Decrease (increase) in loans receivable -- -- 16,069 (16,067) (2)
------------- ----------- -------- -------- ----------
CASH PROVIDED BY (EXPENDED IN)
FINANCING ACTIVITIES 2,521,645 (166,001) 277,029 (37,599) (52,494)
--------- --------- ------- -------- --------
NET CHANGE IN CASH 1,695,150 (1,343) 27,096 (1,372) 3,194
CASH, Beginning of period 15,882 535 1,870 3,242 48
---------- --------- ----- ----- ---------
CASH, End of period CDN$1,711,032 CDN$ (808) CDN$ 28,966 CDN$ 1,870 CDN$ 3,242
============= ============= ============ =========== ===========
F-6
57
LASERMEDIA COMMUNICATIONS CORP.
STATEMENT OF RETAINED EARNINGS (CANADIAN GAAP)
STATEMENTS OF RETAINED EARNINGS
AS OF COMBINED STATEMENTS OF RETAINED EARNINGS
SEPTEMBER 30 AS OF DECEMBER 31
------------ -----------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
RETAINED EARNINGS (DEFICIT),
BEGINNING OF PERIOD CDN$(165,189) CDN$(11,912) CDN$218,230 CDN$179,464 CDN$129,425
NET INCOME (LOSS) 418,518 (61,709) (155,823) 81,089 101,161
DRAWINGS -- -- (116,877) (42,323) (51,122)
----------- ------------ --------- -------- --------
RETAINED EARNINGS,
END OF PERIOD CDN$253,329 CDN$(73,621) CDN$54,470 CDN$218,230 CDN$179,464
=========== ============ ========== =========== ===========
F-7
58
LASERMEDIA COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. These combined statements of the Company are
prepared in accordance with generally accepted accounting principles (Canadian
GAAP) and include the accounts of Lasermedia, Inc., Laserset Graphics Inc. and
Laserset Graphics (a partnership) which as a group are referred to as the
"Company" in these financial statements. Laserset Graphics Inc. was
incorporated on June 4, 1996. The partnership's net assets were transferred
into Laserset Graphics Inc. on June 21, 1996. Laserset Graphics Inc. was
acquired by Lasermedia in the fourth quarter of 1997 and was subsequently
amalgamated on December 31, 1997.
With respect to the partnership, Laserset Graphics, these combined
financial statements reflect only the assets, liabilities, revenues and expenses
of the partnership and do not include any other assets, liabilities, revenues or
expenses of the partners or the liability for taxes on earnings of the partners.
No provision has been made for salaries or for interest on invested capital.
INVENTORY. Inventory is valued at the lower of cost or net realizable
value with cost being determined on a first-in, first-out basis.
CAPITAL ASSETS. The Company records capital assets at historical cost
and annually provides for amortization. Amortization rates are calculated to
write off the assets over their estimated useful life as follows:
Equipment 30% declining balance
Computer hardware 30% of declining balance
Automobile 30% of declining balance
Furniture and fixtures 20% of declining balance
Computer software 100% straight-line
Leasehold improvements straight-line over 5 years
PRODUCT DEVELOPMENT COSTS. Product development costs are capitalized
until the associated products reach commercial production. These costs will be
amortized over three years on a straight line basis once commercial production
has commenced.
F-8
59
2. CAPITAL ASSETS
1996 1995 1994
---------------------------------------------------- ----------------- -----------------
ACCUMULATED NET BOOK NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE VALUE
Equipment $ 90,098 $ 18,394 $ 71,704 $ 82,170 $ 92,643
Computer hardware 45,261 6,789 38,472 -- --
Automobile 3,817 1,145 2,672 3,817 5,453
Furniture and 2,664 501 2,163 2,350 2,709
fixtures
Computer software 1,446 1,446 -- 1,447 3,588
Leasehold 1,136 1,136 -- 1,136 2,651
---------
improvements
$144,422 $ 29,411 $115,011 $ 90,920 $107,044
--------
3. LOAN PAYABLE
The loan from P.H. Pedrette is unsecured, bears interest at 7% per
annum and is due on demand.
F-9
60
4. LONG TERM DEBT
1996 1995 1994
Bank term loan #1 - repayable in monthly installments $ 7,516 $12,270 $16,908
of $396 on account of principal plus interest at prime
plus 1.75% per annum. The loan is secured by a
general security agreement.
Bank term loan #2 - repayable in monthly installments 3,467 6,067 8,667
of $216 on account of principal plus interest at prime
plus 2.5% per annum. The loan is secured by specific
equipment.
Bank term loan #3 - repayable in monthly installments 890 3,029 --
of $178 on account of principal plus interest at prime
plus 3% per annum. The loan is secured by specific
equipment.
Ontario Film Development Corporation - is unsecured, 11,250 15,000 --
------ ------ -------
non-interest bearing and is repayable in monthly
principal payments of $750 for the period August 1,
1996 to March 1, 1998
23,123 36,366 25,575
Less: current portion 17,246 13,243 7,237
------ ------ -----
$ 5,877 $23,123 $18,338
-------
F-10
61
5. DUE TO RELATED COMPANIES
The advance of CDN$40,000 from one of the shareholders, Cune Management
Limited, is non-interest bearing, unsecured, with no fixed term of repayment.
The advances from a related company of CDN$251,786 are non-interest bearing,
unsecured, with no fixed terms of repayment.
6. CAPITAL STOCK
AUTHORIZED
Unlimited Common shares
ISSUED 1996 1995 1994
400 Common Shares
(1995 - 200, 1994 - 200) CDN$ 99,296 CDN$ 2 CDN$ 2
=========== ========= ========
On June 21, 1996, Laserset Graphics, Inc. purchased the net assets of Laserset
Graphics (a partnership) for CDN$99,294 by issuing 200 common shares to the
Partners.
7. INCOME TAXES
The Company follows the deferral method of applying the tax allocation
basis of accounting for income taxes. Under this method, timing differences
between the period when income and expenses are reported for tax purposes and
the period when they are recorded in the accounts result in provisions for
deferred taxes.
At December 31, 1996, the Company had non-capital losses for income tax
purposes of approximately CDN$94,500 available to offset future taxable income.
The potential tax benefits have not been reflected in these financial
statements. These losses will expire as follows:
2002 CDN$ 12,000
2003 CDN$ 82,500
CDN$ 94,500
F-11
62
8. 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 material respects with
those in the United States ("U.S. GAAP"), except as follows:
(A) Adjus(TM)ents to Earnings
STATEMENTS OF
OPERATIONS COMBINED STATEMENTS
(UNAUDITED) OF OPERATIONS
AS OF AS OF
SEPTEMBER 30 DECEMBER 31
------------ -----------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Net income (Loss) in accordance with
Canadian GAAP $ 418,518 $ (61,708) $ (155,823) $ 81,089 $ 101,161
Less: product development costs1 (net of
taxes)2 94,340 -- 80,264 52,153 83,852
------- ---------- ------ ------ ------
Net income (Loss) in accordance
with U.S. GAAP $ 324,178 $ (61,708) $ (236,087) $ 28,936 $ 17,309
======= ======== ========= ====== ======
Weighted average number of common
shares under U.S. GAAP3 10,345,766 7,000,000 7,000,000 7,000,000 7,000,000
Primary earnings (loss) per share
in accordance with U.S. GAAP3 $ NIL $ 0.01 $ 0.03 $ NIL $ NIL
=== ==== ==== === ===
- --------
1. Product development costs, which are capitalized under Canadian GAAP, are
expensed under U.S. GAAP.
2. Under U.S. GAAP, in accordance with 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 U.S. GAAP, the primary earnings (loss) per share are based on the
weighted average aggregate umber of common shares and their equivalents
outstanding during each year, using the "treasury stock method" for the
outstanding stock options.
F-12
63
(B) Adjustments to Assets, Liabilities and Shareholders' Equity
STATEMENTS OF
OPERATIONS COMBINED STATEMENTS
(UNAUDITED) OF OPERATIONS
AS OF AS OF
SEPTEMBER 30 DECEMBER 31
------------ -----------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(i) Total Assets in accordance with
Canadian GAAP $4,230,067 N/A $571,569 $483,869 N/A
Less: Deferred product
development costs 414,609 288,269 181,405
Deferred stock compensation 278,500 N/A -- -- N/A
costs1
Total Assets in accordance
with U.S. GAAP $4,094,008 $283,300 $302,464
========== ======== ========
(ii)Total liabilities in accordance with
Canadian GAAP $ 940,335 N/A $526,743 $265,637 N/A
Less: Deferred income taxes2 104,000 72,000 45,400
Increase in capital stock due to
deferred stock compensation
costs1 278,550 N/A -- -- (N/A
---------- ---------- --------
Total liabilities in accordance with
U.S. GAAP $ 836,335 $ 454,743 $220,237
========== ========== ========
(iii) Total shareholders' equity in
accordance with Canadian GAAP $3,289,732 N/A $ 44,826 $218,232 N/A
Less: Product development costs3
(net of taxes)2 310,609 216,259 136,005
---------- ---------- --------
Total shareholders' equity in
accordance with U.S. GAAP $2,979,123 $ (171,433) $ 82,227
========== ========== ========
(C) Adjus(TM)ents to Cash Flows
STATEMENTS OF
OPERATIONS COMBINED STATEMENTS
(UNAUDITED) OF OPERATIONS
AS OF AS OF
SEPTEMBER 30 DECEMBER 31
------------ ------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Cash provided by operating activities
in accordance with Canadian GAAP $595,565 $ 286,134 $ (20,167) $ 149,038 $ 191,705
Less: product development costs3
(net of taxes)2 94,340 -- 80,264 52,153 83,852
--------- ----------- ----------- ---------- ----------
Cash provided by operating activities
in accordance with U.S. GAAP $501,225 $ 288,134 $ (100,431) $ 96,885 $ 107,853
======== =========== =========== ========== ==========
- --------
1. Under U.S. GAAP, in accordance with Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), Accounting for Stock Based Compensation,
the Company is required to either disclose or recognize stock based
compensation costs using the fair market value method. Under Canadian
GAAP, the fair market value of stock based compensation costs, using
either the intrinsic or fair value methods, is not recognized or disclosed
in the financial statement.
2. Under U.S. GAAP, in accordance with 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. Product development costs, which are capitalized under Canadian GAAP, are
expensed under U.S. GAAP.
F-13
64
9. SUPPLEMENTAL NOTES
(A) Earnings (Loss) Per Share
The basic earnings (loss) per share have been calculated using the
weighted average aggregate number of common shares outstanding during the year.
As of As of As of
9/30/97 9/30/96 12/31/96 12/31/95 12/31/94
--------- --------- -----------------------------------------------
Weighted average number of 9,959,280 7,000,000 7,000,000 7,000,000 7,000,000
common shares outstanding
Basic earnings (loss) per share $ 0.04 $ (0.01) $ (0.02) $ 0.01 $ 0.01
The weighted average number of common shares for the periods ending 1994 - 1996
reflect the conversion of 200 common shares that were outstanding throughout
these periods into 7,000,000 common shares on March 26, 1997.
(B) Changes in Non-Cash Operating Assets and Liabilities
As of As of As of
9/30/97 9/30/96 12/31/96 12/31/95 13/31/94
--------- --------- -----------------------------------------------
(Increase) decrease in accounts $ (259,867) $ 161,692 $ 50,819 $ (106,293) $ (78,455)
receivable
(Increase) decrease in subscriptions (14,900) - - - -
receivable
(Increase) decrease in inventory (47,794) - (6,393) - -
(Increase) decrease in prepaid (75,415) - 9,857 (29,009) (2,000)
expenses and sundry assets
Increase (decrease) in accounts payable
and accrued liabilities 376,446 180,269 (28,640) 94,717 106,515
---------- ---------- -------- ---------- ---------
$ (21,530) $ 341,961 $25,643 $ (18,433) $ 27,860
=========== ========== ======= =========== =========
No income taxes were paid during the periods represented, and the amount of
cash interest is not presented since it is immaterial.
F-14
65
(C) Loans Due From Related Companies (Status as of September 30, 1997)
Advances to related companies are summarized as Sept. 30, 1997
follows: --------------
Advances to R.T. Equity Inc. are non-interest $ 50,125
bearing, unsecured and due on demand
Advances to Laserset Graphics Inc. are non-interest 189,063
bearing, unsecured and due on demand
Advance to Cune Management Inc. bears interest at
12% per annum, secured by a pledge of shares of
the company and is due on September 18, 1998 $ 250,000
--------
Total 489,188
========
(D) Loan Agreement with Bank of Nova Scotia
The Company is in repayment under a loan agreement with the Bank of
Nova Scotia. The loan proceeds were used to finance leasehold improvements. The
loan bears interest at an annual rate equal to the bank's prime rate plus 2.5%,
is due on demand, and is secured by a general security encumbering enhancing the
assets of the Company. The loan balance was $195,000 as of September 30,1997.
(E) Stock Option Plans
The Company has approved a stock option plan (the "Plan") for
directors, officers, employees, consultants and advisors of Lasermedia
Communications Corp., 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. The Plan provides that the number of
common shares under option at any one time will not exceed 2,000,000 shares. No
single individual may hold options in respect of more than 5% of the issued and
outstanding common shares.
Stock options outstanding as at September 30, 1997 are exercisable as
follows:
DATE OF GRANT NUMBER OF STOCK EXERCISE OPTION
OPTIONS ISSUED PRICE EXPIRATION DATE
July 17, 1997 392,000 $ 1.00 July 16, 1999
July 17, 1997 50,000 $ 1.25 July 16, 1999
July 17, 1997 353,000 $ 1.50 July 16, 2000
July 17, 1997 63,000 $ 1.75 July 16, 2000
August 13, 1997 4,000 $ 1.25 August 12, 1999
August 13, 1997 4,000 $ 1.25 August 12, 2000
September 24, 1997 10,000 $ 1.60 September 24, 1999
F-15
66
September 24, 1997 10,000 * September 24, 1999
886,000
* market price on March 24, 1998
F-16
67
LASERMEDIA COMMUNICATIONS CORP.
SCHEDULE FOR PROFORMA BALANCE SHEET
JANUARY 1, 1997
LASERMEDIA OSGOODE PRO-FORMA PROFORMA
INC. HOLDINGS ENTRIES BALANCE
INC. DR CR SHEET
Cash CDN$28,966 CDN$ (4) CDN$4,875,00 CDN$4,903,966
Accounts receivable 132,929 132,929
Inventory 6,393 6,393
Capital Assets 115,011 115,011
Product Development Costs 288,269 288,269
Goodwill 1 (3) 305,784 305,785
Accounts payable & accrued (129,834) (218,965)(2) 218,965 (129,834)
liabilities
Loan payable (10,000) (10,000)
Current portion of long term (17,246) (17,246)
debt
Long Term Debt (5,877) (5,877)
Due To Related Companies (291,786) (291,786)
Capital Stock (99,296) (624,401)(1) 624,400(4) (4,875,000) (5,280,081)
(2) (305,784)
Retained Earnings (17,530) 843,366 (1) (624,400) (17,529)
(2) (218,965)
TOTAL CDN$0 CDN$0 CDN$6,024,149 CDN$(6,024,149 ) CDN$0
NOTE:
(1) to record reduction of stated capital per resolution
(2) to eliminate Accounts Payable
(3) to record goodwill re: share per share exchange and debt settlement
agreement
(4) to record proceeds from private placement issue
F-17
68
LASERMEDIA COMMUNICATIONS CORP.
RECONCILIATION TO U.S. GAAP
ITEM 19(A). FINANCIAL STATEMENTS AND EXHIBITS
For a list of all financial statements filed as part of this registration
statement please see Index to Financial Statements and Supplementary Data under
Item 18.
ITEM 19(B). EXHIBITS
EXHIBIT NO. DESCRIPTION
1(a) Articles of Incorporation
1(b) Bylaws
2(a) Specimen Common Stock Certificate
2(b) Form of Warrant
2(c)(1) 1997 Stock Option Plan
3(a)(1) Share Exchange Agreement dated April 7, 1997 by and between
Osgoode Holdings, Inc. and Lasermedia Inc.
3(a)(2) Consulting Services Agreement dated February 2, 1997 by and
between Lasermedia and Kevin Chaisson
3(a)(3) Consulting Agreement dated September 24, 1997 by and between
Lasermedia and Aludra Software Inc.
3(b)(1) Software Purchase Agreement dated June 27, 1997 by and between
Lasermedia and Softech L.P.
3(b)(2) Supply and Reseller Agreement dated June 27, 1997 by and between
Lasermedia and Softech L.P.
3(c)(1) Stock Option Agreements dated July 17, 1997 by and between
Lasermedia Communications Corp. and Brian Gibson
47
69
3(c)(2) Stock Option Agreement dated July 17, 1997 by and between
Lasermedia Communications Corp. and Samuel Paul
3(c)(3) Stock Option Agreement dated July 17, 1997 by and between
Lasermedia Communications Corp. and Erik Schannen
3(c)(4) Stock Option Agreement dated December 8, 1997 by and between
Lasermedia Communications Corp. and Gordon Cowie
3(d)(1) Term Loan Agreement dated September 18, 1997 by and between Cune
Management, Inc. (Borrower) and Lasermedia Communications Corp.
(Lender)
3(d)(2) Pledge and Security Agreement dated September 18, 1997 by and
between Cune Management, Inc. (Borrower) and Lasermedia
Communications Corp. (Lender)
48
70
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Lasermedia Communications Corp. certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Lasermedia Communications Corp.
11 Charlotte Street
Toronto, Ontario M5V 2H5
Canada
Date: April 10, 1998 /s/ Robert Brian Gibson
-----------------------
Robert Brian Gibson
Chief Operating Officer,
Chief Financial Officer
49
71
LASERMEDIA COMMUNICATIONS CORP.
RECONCILIATION TO U.S. GAAP
ITEM 19(A). FINANCIAL STATEMENTS AND EXHIBITS
For a list of all financial statements filed as part of this registration
statement please see Index to Financial Statements and Supplementary Data under
Item 18.
ITEM 19(B). EXHIBITS
EXHIBIT NO. DESCRIPTION
1(a) Articles of Incorporation
1(b) Bylaws
2(a) Specimen Common Stock Certificate
2(b) Form of Warrant
2(c)(1) 1997 Stock Option Plan
3(a)(1) Share Exchange Agreement dated April 7, 1997 by and between
Osgoode Holdings, Inc. and Lasermedia Inc.
3(a)(2) Consulting Services Agreement dated February 2, 1997 by and
between Lasermedia and Kevin Chaisson
3(a)(3) Consulting Agreement dated September 24, 1997 by and between
Lasermedia and Aludra Software Inc.
3(b)(1) Software Purchase Agreement dated June 27, 1997 by and between
Lasermedia and Softech L.P.
3(b)(2) Supply and Reseller Agreement dated June 27, 1997 by and between
Lasermedia and Softech L.P.
3(b)(3) Financial Statements of Softech L.P.
3(c)(1) Stock Option Agreements dated July 17, 1997 by and between
Lasermedia Communications Corp. and Brian Gibson
47
72
3(c)(2) Stock Option Agreement dated July 17, 1997 by and between
Lasermedia Communications Corp. and Samuel Paul
3(c)(3) Stock Option Agreement dated July 17, 1997 by and between
Lasermedia Communications Corp. and Erik Schannen
3(c)(4) Stock Option Agreement dated December 8, 1997 by and between
Lasermedia Communications Corp. and Gordon Cowie
3(d)(1) Term Loan Agreement dated September 18, 1997 by and between Cune
Management, Inc. (Borrower) and Lasermedia Communications Corp.
(Lender)
3(d)(2) Pledge and Security Agreement dated September 18, 1997 by and
between Cune Management, Inc. (Borrower) and Lasermedia
Communications Corp. (Lender)