U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)| [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended December 31, 2002 |
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _______________________ to _______________________ | |
| Commission File No. 0-23920 | |
MPAC Corporation
(Name of Small Business Issuer in its Charter)
| Nevada | 91-2084507 | ||
| (State or Other Jurisdiction of | (I.R.S. Employer | ||
| incorporation or organization) | Identification No) |
1302 Arbutus Street, Vancouver, B.C. Canada, V6J 3W8
(Address of Principal Executive Offices)
(604) 736-7481
Issuer's Telephone Number
____________________________________________
(Former Name or Former Address, if changed since last Report)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes X No ____ (2) Yes X No ____
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Not applicable
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date: February 10, 2002 Common - 8,291,518 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in Item 6 of this Report.
Transitional Small Business Issuer Format Yes ____ No X
INDEX
Part I - Financial Information
| Item 1. Financial Statements | Page |
| Balance Sheets | |
| Statements of Operations | |
| Statements of Cash Flows | |
| Schedule of Expenses | |
| Notes to the Financial Statements | |
| Item 2. Management's Discussion and Analysis or Plan of Operation | |
| PART II - Other Information | |
| SIGNATURES |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management and commence on the following page, together with related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Company.
MPAC Corporation
(A Development Stage Company)
Interim Financial Statements
December 31, 2002
(Unaudited)
MPAC CORPORATION
Consolidated Balance SheetDecember 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
| 2002 | 2001 | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash and cash equivalents | $ | 22,739 | $ | 54,271 | ||
| Accounts receivable | 6,896 | 29,283 | ||||
| Investment tax credits receivable | - | 84,643 | ||||
| Inventory | - | 15,071 | ||||
| Prepaid expenses and deposits (Note 2) | 568 | 52,543 | ||||
| 30,203 | 235,811 | |||||
| Capital Assets(Note 3) | 4 | 143,156 | ||||
| $ | 30,207 | $ | 378,967 | |||
| LIABILITIES | ||||||
| Current | ||||||
| Accounts payable and accrued liabilities (Note 4) | $ | 194,453 | $ | 132,978 | ||
| Deferred revenue | - | 6,278 | ||||
| Current portion of capital lease obligation (Note 5) | 6,454 | 5,828 | ||||
| Current portion of long-term debt (Note 6) | 3,047 | 2,752 | ||||
| Demand loans (Note 7) | 127,887 | 116,742 | ||||
| 331,841 | 264,578 | |||||
| Capital Lease Obligation(Note 5) | 566 | 6,972 | ||||
| Long-Term Debt(Note 6) | 383,274 | 419,254 | ||||
| 715,681 | 690,804 | |||||
| CAPITAL DEFICIENCY | ||||||
| Share Capital(Note 8) | 618,515 | 568,515 | ||||
| Deficit | (1,303,989 | ) | (880,352 | ) | ||
| (685,474 | ) | (311,837 | ) | |||
| $ | 30,207 | $ | 378,967 | |||
APPROVED BY THE BOARD
__/s/ Adam Smith_______________________Director
__/s/ David R. Uppal _______________ _____Director
MPAC CORPORATION
Consolidated Statement of Loss and Deficit
Three Months Ended December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
| 2002 | 2001 | |||||
| OTHER INCOME | ||||||
| Interest income | $ | 1,362 | $ | 128 | ||
| Other income | - | 16,758 | ||||
| 1,362 | 16,886 | |||||
| EXPENSES | ||||||
| Amortization | - | 7,634 | ||||
| Courier | - | 61 | ||||
| Foreign exchange | 354 | 200 | ||||
| General and administrative | 7,527 | 1,114 | ||||
| Insurance | - | 285 | ||||
| Interest and bank charges | 422 | 599 | ||||
| Interest on long-term debt | 2,788 | 23,349 | ||||
| Legal | 8,478 | 10,599 | ||||
| Management fee | 18,127 | 7,486 | ||||
| Professional fees | - | 2,604 | ||||
| Rent and property taxes | 2,306 | 12,864 | ||||
| Supplies and tools | - | 149 | ||||
| Telephone and utilities | 77 | 4,384 | ||||
| Travel | 2,971 | - | ||||
| Wages | 366 | 523 | ||||
| 43,416 | 71,851 | |||||
| NET LOSS | (42,054 | ) | (54,965 | ) | ||
| DEFICIT, Beginning of Period | (1,261,935 | ) | (825,387 | ) | ||
| DEFICIT, End of Period | $ | (1,303,989 | ) | $ | (880,352 | ) |
| Weighted Average Number of Shares | 8,099,092 | 7,754,188 | ||||
| Loss Per Share | $(0.01 | ) | $(0.01 | ) |
MPAC CORPORATION
Consolidated Statement of Shareholders’ Equity (Capital Deficiency)
Three Months Ended December 31, 2002 (Expressed in U.S. Dollars)
(Unaudited)
| 2002 | 2001 | |||||
| SHARE CAPITAL(Note 6) | ||||||
Common shares | ||||||
Issued and fully paid | ||||||
| Balance, beginning of period | $ | 614,145 | $ | 421,014 | ||
| Issued for cash | - | 50,000 | ||||
| Balance, end of period | 614,145 | 471,014 | ||||
| Allotted for future issues | ||||||
| Issuable on exercise of share conversion rights | ||||||
| Balance, beginning of period | 4,370 | - | ||||
| To be issued on conversion of 6,400,000 shares of | ||||||
| 805332 as consideration for the acquisition of | ||||||
| Micron (Note 1) | - | 4,205 | ||||
| To be issued as a finder’s fee for the acquisition | ||||||
| of Micron | - | 165 | ||||
| Issuable for consulting services, at the completion | ||||||
| of services | - | 34,388 | ||||
| Balance, end of period | 4,370 | 38,758 | ||||
| Issued subsequent to year end | ||||||
| Balance, beginning of period | - | - | ||||
| For the payment of debt to a company owned | ||||||
| by a director | - | 58,743 | ||||
| Balance, end of period | - | 58,743 | ||||
| 618,515 | 568,515 | |||||
| DEFICIT | ||||||
| Balance, beginning of period | (1,261,935 | ) | (825,387 | ) | ||
| Net loss | (42,054 | ) | (54,965 | ) | ||
| Balance, end of period | (1,303,989 | ) | (880,352 | ) | ||
| CAPITAL DEFICIENCY, End of Period | $ | (685,474 | ) | $ | (311,837 | ) |
MPAC CORPORATION
Consolidated Statement of Cash Flows
Three Months Ended December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
| 2002 | 2001 | |||||
| Cash Flows From (Used For) Operating Activities | ||||||
| Cash received from customers | $ | (220 | ) | $ | 431 | |
| Cash paid to suppliers and employees | 18,788 | (14,542 | ) | |||
| Interest received | 1,362 | 128 | ||||
| Interest paid on capital lease obligation | (192 | ) | (328 | ) | ||
| Interest paid on long-term debt | (84 | ) | (148 | ) | ||
| 19,654 | (14,459 | ) | ||||
| Cash Flows From Financing Activities | ||||||
| Long-term debt repayment | (40,684 | ) | (29,241 | ) | ||
| Issue of common shares for cash | - | 50,000 | ||||
| (40,684 | ) | 20,759 | ||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (21,030 | ) | 6,300 | |||
| CASH AND CASH EQUIVALENTS, Beginning of period | 43,769 | 47,971 | ||||
| CASH AND CASH EQUIVALENTS, End of Period | $ | 22,739 | $ | 54,271 | ||
Page 2
MPAC CORPORATION
Consolidated Statement of Cash Flows
Three Months Ended December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
| 2002 | 2001 | |||||
| Cash Flows From (Used For) Operating Activities | ||||||
| Net loss | $ | (42,054 | ) | $ | (54,965 | ) |
| Adjustments to reconcile net loss to net cash used in | ||||||
| Operating activities | ||||||
| Amortization | - | 7,634 | ||||
| Investment tax credits | 86,920 | 767 | ||||
| Consulting, interest and other non-cash items | 2,788 | 32,912 | ||||
| 47,654 | (13,652 | ) | ||||
| Change in operating assets and liabilities | ||||||
| Decrease (increase) in accounts receivable | (220 | ) | 488 | |||
| Decrease (increase) in prepaid expenses and deposits | (3 | ) | 286 | |||
| Increase in demand loan | 2,788 | 26,512 | ||||
| Decrease in accounts payable and accrued liabilities | (30,565 | ) | (28,093 | ) | ||
| $ | 19,654 | $ | (14,459 | ) | ||
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Going Concern | |||
| These consolidated financial statements have been prepared on the going concern basis, which presumes that the company will continue operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of business. The company has a working capital deficiency of $301,638 and a capital deficiency of $685,474 at December 31, 2002 and requires additional capital in order to remain a going concern. The continuation of the company is dependent on its ability to obtain the necessary capital to achieve profitability and to meet the requirements, from time to time, of lenders, if any, who are willing to provide this financing. The company intends to obtain additional capital primarily through the issue of shares and debt. | |||
| These consolidated financial statements do not reflect the adjustments or reclassifications which would be necessary if the company was unable to continue its operations | |||
| . | |||
Operations and Basis of Consolidation | |||
| The company was incorporated on June 18, 1998 in Nevada, U.S.A. and commenced investment operations in October 1998. The company’s wholly-owned subsidiary company, 805332 Alberta Ltd. (“805332”), was incorporated on October 29, 1998 and its 99.99% owned subsidiary company, Micron Milling & Packaging Company Ltd. (“Micron”), was incorporated on August 20, 1998. These consolidated financial statements include the accounts of the company, 805332 and Micron. | |||
| In October 1998 the company raised funds through the issue of shares and shareholder loans, which enabled 805332 to acquire a manufacturing facility located in Crossfield, Alberta, Canada in January 1999. The facility was used to process and package an agricultural product, using by-product sulphur as the primary feedstock, on a seasonal basis, largely between February and September each year. The company intended to manufacture sulphur-based fungicide product in the plant and market it in the United States. Due to financial difficulties caused by the lack of funds to meet ongoing lease obligations, 805332 was placed into receivership by two creditors on May 2, 2000. The Receiver was Smith Cageorge Bailey Inc. of Calgary, Alberta. In consultation with the creditors, it was agreed that the assets of 805332 would be bought from the Receiver by Micron, a company then independent of MPAC and 805332. It was further agreed that the required funding for the refurbishing of the plant and operations would be provided for by funds from the two creditors, by investments from the principals of Micron (Messrs Uppal and Uppal) and by an investment from MPAC. Micron had not previously been a creditor of MPAC or 805332. It was also agreed on May 5, 2000 that MPAC would acquire the 76.5% shares of Micron owned by the two Uppals. The two Uppals would be appointed directors of MPAC upon completion of the acquisition. | |||
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
| Micron was inactive from the date of its incorporation to the date it acquired the plant from the Receiver. | |
| Following the sale of the assets of 805332 both MPAC and 805332 had no significant assets. 805332 came out of receivership on June 1, 2000 and at this point was 100% owned by MPAC Corp. | |
| The company acquired Micron by exchanging the 76.5% of the common shares of Micron owned equally by the two Uppals for 6,400,000 common shares of 805332. Under the terms of the share exchange, these shares are convertible into 6,400,000 common shares of MPAC and have been recorded at a nominal value. The exchange of the Micron shares for shares of 805332 rather than an immediate exchange into MPAC shares is due to the more favourable tax treatment for the holders of the Micron shares, i.e., by exchanging their interest in Micron for shares in another Canadian corporation rather than a United States corporation, any tax consequences can be deferred until the ultimate conversion of their 805332 shares into MPAC common shares. The holders of the 805332 shares have consented to exercise the right of conversion at the time the company requests it, subject to an acceptable tax consequence on the conversion. 805332 has no other assets or operations and MPAC retains a minority interest in the company. Upon conversion MPAC will own a 100% interest in 805332. | |
| The ultimate beneficial ownership of the sulphur fungicide manufacturing plant has, with the exception of three days in 2000, during which the plant was not operating, remained with the MPAC shareholders. These consolidated financial statements have accordingly been prepared as though the operations of the company, 805332 and Micron had been combined since their dates of incorporation. | |
| The company conducted its operations from the manufacturing facility located in leased premises in Crossfield until the conclusion of the 2001 production season when it received orders to cease operations for environmental reasons (Note 11). The company completed the remedial work required under the orders but the lifting of the orders was not done in time for the commencement of production in March 2002. The company therefore contracted all of its production during 2002 to another manufacturer. The company did not maintain its obligations under the lease throughout 2002 and the landlord therefore seized the company’s capital assets in November 2002. The company has offered not to contest the seizure of the assets in exchange for the termination of its obligations under the lease. The company has therefore reduced the carrying value of the manufacturing facility and related assets (Note 3) to a nominal value and intends to contract its future production to another manufacturer. | |
Revenue Recognition | |
| The company’s only product is a sulphur-based fungicide used in agriculture. Revenue from the sale of this product is recognized at fair value when the product is shipped. Sales discounts are netted against the related sales. |
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
Cash Equivalents | ||
| Cash equivalents are defined as highly liquid securities with maturities of three months or less. | ||
Inventory | ||
| Finished goods inventory is recorded at the lower of cost and net realizable value. Raw materials inventory is recorded at the lower of cost and replacement cost. Cost is determined using the average cost method. | ||
Capital Assets | ||
| Capital assets are recorded at cost. Depreciation is recorded at annual rates considered adequate to amortize the cost of the assets over their estimated useful lives as follows: | ||
| Automobile | 30% | |
| Equipment | 20% | |
| Computer equipment | 30% | |
| Equipment under capital lease | Straight line basis over lease term |
| Repairs and maintenance expenditures on capital assets are expensed when incurred unless they extend the productive life of the asset. In that case they are capitalized and amortized over the estimated useful life of the asset in accordance with the methods and rates noted above. | |
| Management periodically reviews the recoverability of long-lived assets based upon anticipated cash flows generated from such assets. The assets are subsequently adjusted to reflect a valuation of the lower of cost or the net recoverable amounts calculated on an undiscounted cash flow basis. | |
| As explained above, the company has reduced the carrying value of the capital assets by 162,517 at September 30, 2002, to a nominal amount, as the assets have been seized by the landlord. | |
| Research and Development | |
| Research and development costs are charged to expense as incurred. |
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Government Assistance | ||
Research and Development Grants | ||
| Government grants for research and development which are non-refundable are accounted for using the cost reduction method whereby, when the company has reasonable assurance that the grants will be received, the grants are deducted from the related research and development expenditures. When the company does not have reasonable assurance that the grants will be received, they are not recorded until they are actually received. They are deducted from the related expenditures when received, or, if they are received in a subsequent period when no such research and development expenditures have been incurred, they are recorded as other income. | ||
| Government grants received before the related expenditures are incurred or which are repayable unless specific conditions are completed are deferred until the company has fulfilled all of its obligations related to the work and reporting requirements of the grants. | ||
Investment Tax Credits | ||
| Investment tax credits are available to the company on defined expenditures related to the construction and operation of the plant. Investment tax credits are accounted for using the cost reduction method whereby, when the company has reasonable assurance that the tax credits will be realized, the credits are deducted from the cost of the related assets or the related expenses. | ||
Foreign Currency Translation | ||
| Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using historical rates. Revenue and expense items are translated at exchange rates prevailing at the time of the transaction. Translation gains and losses are included in the determination of accumulated other comprehensive income, a component of shareholders’ equity. | ||
| Translation adjustments for the periods ended December 31, 2002 and 2001 have not been material and therefore have been included in the determination of net loss for these periods. In addition, there were no material transaction gains or losses during these periods. | ||
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates | |
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions the company may undertake in the future, actual results may ultimately differ from the estimates Management believes such estimates to be reasonable. | |
Accounting Pronouncements | |
| The company adopts new pronouncements relating to generally accepted accounting principles applicable to the company as they are issued, which may be in advance of their effective date. | |
2. | PREPAID EXPENSES AND DEPOSITS |
| 2002 | 2001 | ||||||
| Prepaid rent and utilities | $ | - | $ | 9,588 | |||
| Prepaid insurance and other | 568 | 591 | |||||
| Prepaid purchase of sulphur | - | 3,284 | |||||
| Refundable deposit on machinery purchase | - | 39,080 | |||||
| $ | 568 | $ | 52,543 | ||||
 | |
3. | CAPITAL ASSETS | |
| The company reduced the carrying value of capital assets by $162,517 at September 30, 2002, to a nominal amount, as the assets were seized by the landlord of the premises the company occupied in Crossfield, Alberta (Note 1). | ||
| 2002 | |||||||||||||
| Reduction | |||||||||||||
| Accumulated | In Carrying | Net Book | |||||||||||
| Cost | Amortization | Value at | Value | ||||||||||
| Sept 30, 2002 | Dec 31,2002 | ||||||||||||
| Automobile | $ | 13,194 | $ | 4,422 | $ | 8,771 | $ | 1 | |||||
| Equipment | 197,940 | 54,498 | 143,441 | 1 | |||||||||
| Computer equipment | 1,555 | 1,050 | 504 | 1 | |||||||||
| Equipment under capital lease | 18,344 | 8,542 | 9,801 | 1 | |||||||||
| $ | 231,033 | $ | 68,512 | $ | 162,517 | $ | 4 | ||||||
| | | | | | | |
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
3. | CAPITAL ASSETS (continued) | |||||||||
| 2001 | ||||||||||
| Accumulated | Net Book | |||||||||
| Cost | Amortization | Value | ||||||||
| Automobile | $ | 13,151 | $ | 2,786 | $ | 10,365 | ||||
| Equipment | 163,205 | 43,881 | 119,324 | |||||||
| Computer equipment | 1,642 | 956 | 686 | |||||||
| Equipment under capital lease | 18,342 | 5,561 | 12,781 | |||||||
| $ | 196,340 | $ | 53,184 | $ | 143,156 | |||||
| | | | | |
4. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | ||||||
| 2002 | 2001 | ||||||
| Trade accounts payable | $ | 97,158 | $ | 71,392 | |||
| Professional fees payable | 97,295 | 61,586 | |||||
| $ | 194,453 | $ | 132,978 | ||||
| | | |
5. | CAPITAL LEASE OBLIGATION | |||
| Future minimum lease payments under a capital lease obligation are: | ||||
| 2003 | $ | 5,135 | ||
| 2004 | 2,282 | |||
| 7,417 | ||||
| Less amount representing interest | (397 | ) | ||
| 7,020 | ||||
| Less current portion | (6,454 | ) | ||
| $ | 566 | |||
| |
MMPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
6. | LONG-TERM DEBT | ||||||
2002 | 2001 | ||||||
| Bank loan payable with interest at 9.55% per annum, | |||||||
| repayable in blended monthly payments of $275 per | |||||||
| month, secured by an automobile | $ | 3,047 | $ | 5,778 | |||
| Loans, payable to shareholders without interest and with | |||||||
| no specific repayment terms.These loans represent cash | |||||||
| advances used for the purpose of construction of the plant | |||||||
| and for working capital. Loans in the amount of $187,564 | |||||||
| are secured by a general security agreement over the | |||||||
| assets of the company | 383,274 | 416,228 | |||||
| 386,321 | 422,006 | ||||||
| Less current portion | (3,047 | ) | (2,752 | ) | |||
| $ | 383,274 | $ | 419,254 | ||||
| | | | ||||
| Principal repayment of long term debt during the next fiscal year is expected to be $3,047. | |||||||
7. | DEMAND LOANS |
| The demand loans bear interest at 10% per annum, are unsecured and are payable on demand. | |
8. | SHARE CAPITAL |
| Authorized | |
| Unlimited number of common shares without par value |
| Number of | ||||||
| Shares | Amount | |||||
| Issued and fully paid | ||||||
| Balance, October 1, 1998 | - | $ | - | |||
| Issued for cash | 7,176,667 | 56,014 | ||||
| Balance, September 30, 1999 | 7,176,667 | 56,014 | ||||
| Issued for cash | 350,000 | 175,000 | ||||
| Balance, September 30, 2000 | 7,526,667 | 231,014 | ||||
| Issued for cash | 380,000 | 190,000 | ||||
| Balance, September 30, 2001 | 7,906,667 | 421,014 | ||||
| Issued for cash | 200,000 | 100,000 | ||||
| Issued for consulting services, at the completion of services | 70,000 | 34,388 | ||||
| Issued for payment of debt to a company owned by a director | ||||||
| and shareholder | 114,851 | 58,743 | ||||
| Balance, September 30, 2002 and December 31, 2002 | 8,291,518 | 614,145 | ||||
| | |
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
8. | SHARE CAPITAL (continued) | |||||
Allotted for future issues | ||||||
| Issuable on the exercise of share conversion rights (Note 1) | ||||||
| To be issued on conversion of 6,400,000 shares of 805332, | ||||||
| as consideration for the acquisition of Micron | 6,400,000 | 4,205 | ||||
| To be issued as a finder’s fee for the acquisition of Micron | 250,000 | 165 | ||||
| 6,650,000 | 4,370 | |||||
| ||||||
| $ | 618,515 | |||||
| |
| On May 5, 2000 the company allotted, as part of a series of transactions related to the acquisition of Micron (Note 1), 6,400,000 common shares to be issued on the conversion of 6,400,000 shares of 805332 into common shares of the company. The common shares may be issued at the request of the owners of the 805332 shares or at the request of the company and have not been issued to date due to possible Canadian tax consequences to the owners of 805332 shares. The allotment of these common shares has been recorded at a nominal value. | ||
| On May 5, 2000, the company allotted 250,000 common shares to be issued as a finder’s fee related to the acquisition of Micron (Note 1). These common shares will be issued when the 805332 shareholders exercise their conversion rights and have been valued on the same basis as the 805332 conversion right. | ||
| On October 4, 2000, 70,000 common shares were allotted for the future issue to a financing consultant in conjunction with services rendered. These common shares were valued on the basis of this consulting work and cash consideration received by the company for common shares at the time agreement for the services was reached and were issued when the services were completed. | ||
| The debt amounting to $58,743, which was payable to a company owned by a shareholder, was repaid by the issue of 114,851 common shares. The valuation was based on the accrued principal and interest owing and the cash consideration received by the company for common shares at the time agreement for the share repayment was reached. | ||
9. | RESEARCH AND DEVELOPMENT COSTS | |
| The company’s research and development costs are primarily composed of external engineering consulting fees and are classified as consulting fees in these financial statements. | ||
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
10. | INCOME TAXES |
| The company has incurred losses for Canadian income tax purposes of approximately $377,000 which can be carried forward to reduce taxable income in future years to 2007. The company has incurred losses for U.S. income tax purposes of approximately $275,000 which can be carried forward to reduce taxable income in future years to 2016. The potential income tax benefits of these losses have not been recognized in these consolidated financial statements. | |
| The company also has available unclaimed investment tax credits of approximately $3,539 and unclaimed research and development expenses of approximately $373,346 which may be carried forward indefinitely and used to reduce future income taxes in Canada. | |
| Investment tax credits that the company is eligible to receive in any year are recorded for tax and accounting purposes when receipt is more certain than not, either as a reduction of capital assets additions or of expenses. | |
| The statutory tax rates applicable to the company’s manufacturing and sale of operations in Canada are: |
| Taxable income up to $127,000 | 16.37% | |||
| Taxable income greater than $127,000 | 27.46% |
11. | CONTINGENCIES AND COMMITMENTS | ||
| The company entered into a premises lease agreement with Finnie Holdings Ltd. (“Finnie”) on March 1, 2000, pursuant to which the company will be required to pay $31,676 to Finnie if it does not comply with all the covenants, conditions and obligations of the lease. Finnie will waive payment of the $31,676 at the end of the lease if the company complies with all the covenants, conditions and obligations of the lease. The initial lease term was for one year and the lease is renewable on a year to year basis until February 28, 2010. The company did not maintain all its obligations under the lease throughout 2002 and Finnie seized the company’s capital assets in November 2002. The company has offered not to contest the seizure of the assets in exchange for the termination of its obligations under the lease. | |||
| Orders to cease operations for environmental contamination were issued in 2001 for the premises the company operates from by Alberta Environment and the Town of Crossfield. The Alberta Environment order related to the operations of a previous tenant and it was expected that all costs relating to remedial work will be borne by Finnie. The order from the Town of Crossfield related to the company’s operations. The remedial work was completed prior to the year end but the required documentation and inspections have not been completed. | |||
MPAC CORPORATION
Notes to Consolidated Financial Statements
December 31, 2002
(Expressed in U.S. Dollars)
(Unaudited)
12. | FINANCIAL INSTRUMENTS |
| The fair value of the company’s financial instruments, which are cash, accounts receivable, and accounts payable, approximate their carrying value in these financial statements. | |
| The company reduces its credit risk, the possibility that entities to which the company sells its products may experience financial difficulty and be unable to fulfil their obligations, by performing credit evaluations before sales are made. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This report contains forward-looking statements. The words, “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “project”, “could”, “may”, “foresee”, and similar expressions are intended to identify forward-looking statements. The following discussion and analysis should be read in conjunction with the Company's Financial Statements and other financial information included elsewhere in this report which contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.
Overview
We were incorporated under the laws of the State of Nevada on July 18, 1998 for the purpose of raising capital to acquire a processing plant and machinery necessary to undertake production of sulfur-based plant nutrient fertilizers and fungicides. Our subsidiary, Micron, was incorporated under the laws of Alberta on August 20, 1998.
The Company is a development stage company engaged in the business of marketing and selling a sulfur-based fungicide that is used for commercial agricultural purposes. The processing and packaging of our sulfur products is carried out at a third parties facility. Currently our sulfur-based products are sold primarily to the agriculture industry in the state of California. Orders as of February 10, 2003 for fungicide to be delivered during the upcoming year are approximately 5,000 tons with a value slightly in excess of $1 million.
In a development stage company, management devotes most of its activities to establishing a new business. Planned principal activities have not yet produced significant revenues and the Company has suffered recurring operating losses as is normal in development stage companies. The company has a working capital deficiency of $301,638 and a capital deficiency of $685,474 at December 31, 2002. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to emerge from the development stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, receive funding from related parties and controlling shareholders, and develop a market for its products.
Progress Report from September 30, 2002 to December 31, 2002
Due to the seasonality of product sales in our market during the Quarter ending December 31 the Company had no sales.
On November 15, 2002 voluntarily entered into a Consent Order as well as Consent to Repossession and Sale or Retention with its Alberta landlord. Under the terms of the agreement we are no longer bound by the terms of the lease and we have given over ownership of the equipment in the plant to the landlord. We are currently negotiating with the landlord to assist him with the removal and sale of the equipment with the intention of retaining for our use the pieces that will be of benefit to our future operations.
In November of 2002 we entered into negotiation for the acquisition of a corporation operating in the agricultural fertilizer industry and whose products and production facility would compliment our product, marketing history, and experience. Negotiations are ongoing.. The acquisition would provide Micron with complete manufacturing and production, storage, and packaging facilities for its product as well as additional sulfur based agriculture products. No deal has been reached and no agreement has been entered into at this point.
Results of operations for the three months ended December 31, 2002 (“2002”) compared to the three months ended December 31, 2001 (“2001”).
Sales revenues for the three months ended December 31, 2002 were nil as were sales for the three months ended December 31, 2001. Expenses for the three months ended December 31, 2002 were $43,416 compared to expenses of $71,851 for the three months ended December 31, 2001. The drop represents the elimination of costs related to the maintenance of a production facility.
Net loss for the three months ended December 31, 2002 were $43,416 compared to a net loss of $71,851 for the three months ended December 31, 2001 and this decrease in the loss relates to the elimination of costs relating to the maintenance of our own production facilities.
Cash and cash equivalents at December 31, 2002 totalled $22,739 as compared with the cash and cash equivalents of $54,271 at December 31, 2001. Accounts receivable at December 31, 2002 was $6,896 as compared to 29,283 at December 31, 2001. An investment tax credit of $84,643 was receivable at December 31, 2001 while no investment tax credit was receivable at December 31, 2002. No inventory was held at December 31, 2002 compared with inventory of 15,071.
Write downs in value of prepaid expenses of $52,543 and Capital Assets of $143,156 to $568 and $4 respectively occurred as a result of the voluntarily entered into Consent Order and Consent to Repossession and Sale or Retention with our Alberta landlord.
For the three months ended December 31, 2002, there were no capital expenditures. Long Term Debt was reduced to $383,274 at December 31, 2002 compared to $419,254 at December 31, 2002 due to a partial repayment of a loan due to a Director of the company.
To date, we have not invested in derivative securities or any other financial instruments that involve a high level of complexity or risk. We expect that in the future, any excess cash will continue to be invested in high credit quality, interest-bearing securities. We believe cash from operating activities, and our existing cash resources may not be sufficient to meet our working capital requirements for the next 12 months. We will likely require additional funds to support the development and marketing of our product. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, we may be unable to develop or enhance our products, take advantage of future opportunities, respond to competitive pressures, and may have to curtail operations. There are no legal or practical restrictions on the ability to transfer funds between parent and subsidiary companies. We do not have any material commitments for capital expenditures as of December 31, 2002.
Critical Accounting Policies:
The Company’s discussion and analysis of its financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amount of investment tax credits, trade accounts receivable, and deferred tax assets. The Company believes the following critical accounting policies require its more significant judgment and estimates used in the preparation of the consolidated financial statements.
The company follows the cost reduction method of accounting for investment tax credits and recognizes the estimated net recoverable amount when reasonable assurance exists as to their collectability. The company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the uncollectability of the company’s trade accounts receivable balances. If the company determines that the financial conditions of any of its customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. To date no customer balance has been unpaid in the timeframe allowed to customers.
Income taxes are accounted for under the asset and liability method. Under this method, to the extent that it is not more likely than not that a deferred tax asset will be recovered, a valuation allowance is provided. In making this determination, the Company considers estimated future taxable income and taxable timing differences expected to reverse in the future. Actual results may differ from those estimates.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are designed to ensure that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.
(b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.
PART II Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
99.1 Certification of Adam Smith, President (Principal Executive Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of David Uppal, Director (Principal Financial Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
There were no Forms 8-K filed during the period of this report.
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: February 10, 2003 | MPAC Corporation |
| By: | /s/ Adam Smith | |
| Adam Smith, President | ||
| (Principal Executive Officer) | ||
| By: | /s/ Michael Laidlaw | |
| Michael Laidlaw, Director | ||
| (Principal Financial Officer) |
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Adam Smith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of MPAC Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 10, 2003
/s/ Adam Smith
Adam Smith
Chief Executive Officer
CERTIFICATION BY PRINCIPAL FINANCAIL OFFICER
I, Michael Laidlaw, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of MPAC Corporation:
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 10, 2003
/s/ Michael Laidlaw
Michael Laidlaw
Chief Financial Officer
EXHIBIT 99.1
CERTICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MPAC Corporation (the "Company") on Form 10-QSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Adam Smith, President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
I have reviewed the Report;
based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report; and
based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in the Report.
/s/ Adam Smith
Adam Smith
Chief Executive Officer
CERTICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
| In connection with the Quarterly Report of MPAC Corporation (the "Company") on Form 10-QSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Laidlaw, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: |
| I have reviewed the Report; |
| based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report; and |
| based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in the Report. |
| /s/ Michael Laidlaw |
| Michael Laidlaw |
| Chief Financial Officer |