BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 2002 (Unaudited) | August 31, 2002 |
ASSETS | ||
Current Assets: | ||
Cash and cash equivalents | $ 58,020 | $ 59,065 |
Funds held in escrow | 193,444 | 219,026 |
Accounts receivable | 151,438 | 55,031 |
Prepaid expenses and sundry | 9,929 | 11,556 |
Total current assets | 412,831 | 344,678 |
Property, plant and equipment – net | 78,730 | 63,926 |
Intangible assets (net of accumulated amortization of $8,704 and $5,514) | 16,558 | 19,748 |
TOTAL ASSETS | $ 508,119 | $ 428,352 |
LIABILITIES AND STACKHOLDERS’ DEFICIENCY | ||
Current Liabilities: | ||
Accounts payable and accrued expenses | $ 536,054 | $ 441,932 |
Income tax payable | 47,899 | 48,123 |
Current portion of loan payable | 14,715 | 14,783 |
Total Current Liabilities | 598,668 | 504,838 |
Loans from stockholders | 123,192 | 125,122 |
Loan Payable – long term portion | 28,075 | 33,134 |
Total liabilities | 749,935 | 663,094 |
Commitments and Contingencies | ||
Stockholders’ Deficiency: | ||
Common stock $0.001 par value – authorized 50,000,000 shares; 19,015,893 shares issued and outstanding, respectively | 19,016 | 19,016 |
Additional paid-in capital | 454,790 | 454,790 |
Accumulated deficit | (699,123) | (691,002) |
Accumulated other comprehensive loss | (13,999) | (15,046) |
Treasury stock, 100,000 shares at cost | (2,500) | (2,500) |
Total Stockholders’ Deficiency | (241,816) | (234,742) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | $ 508,119 | $ 428,352 |
See Notes to Consolidated Financial Statements
F-1
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended November 30, | |||
2002 | 2001 |
Revenue | $ 386,230 | $ 6,012 |
Cost and Expenses: | ||
Cost of sales | 296,974 | 7,940 |
General and administrative | 94,444 | 46,229 |
Expenses | 391,418 | 54,169 |
Loss from operations | (5,188) | (48,157) |
Other income (expense): | ||
Interest income | 726 | - |
Interest expense | (3,659) | - |
Loss before minority interest | $ (8,121) | $ (48,157) |
Minority interest in loss of consolidated subsidiary | - | - |
Net (loss) | $ (8,121) | $ (48,157) |
Net loss per common share – basic and diluted | - | - |
Weighted average number of common shares outstanding – basic and diluted | 18,915,893 | 17,115,893 |
See Notes to Consolidated Financial Statements
F-2
BANKENGINE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)
Compreh-ensive Income (loss) | Common Shares | Stock Amount | Treasury Shares | Stock Amount | Additional Paid-in Capital | Retained Earnings (deficit) | Cumulative Other Compreh-ensive Income (loss) | Total |
Balance, September 1, 2001 | 17,115,893 | $17,116 | - | $ - | $431,190 | $(391,755) | $(12,326) | $44,225 | |
Shares issued in exchange for shares of Platinium Technologies | 1,800,000 | 1,800 | 16,200 | 18,000 | |||||
Shares issued in exchange for services | 100,000 | 100 | 2,400 | 2,500 | |||||
Issuance of shares for services cancelled and shares reacquired by the Company and held as treasury stock | (100,000) | (2,500) | (2,500) | ||||||
Options issued in exchange for services | 5,000 | 5,000 | |||||||
Net loss | $(299,247) | (229,247) | (299,247) | ||||||
Foreign currency translation | (2,720) | (2,720) | (2,720) |
Comprehensive loss | $ (301,967) | ||||||||
Balance, August 31, 2002 | 19,015,893 | 19,016 | (100,000) | (2,500) | 454,790 | (691,002) | (15,046) | (234,742) | |
Net loss for the period | $(8,121) | (8,121) | (8,121) | ||||||
Foreign currency translation | 1,047 | 1,047 | 1,047 |
Comprehensive loss | $ (7,074) | ||||||||
Balance, November 30, 2002 | 19,015,893 | $19,016 | (100,000) | $(2,500) | $454,790 | $(699,123) | $(13,999) | $(241,816) | |
See Notes to Consolidated Financial Statements
F-3
BANKENGINE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended November 30, | |||
2002 | 2001 |
Cash flows from operating activities: | ||
Net (loss) | $ (8,121) | $ (48,157) |
Adjustments to reconcile net (loss) to cash provided by operating activities: | ||
Depreciation and amortization | 7,388 | 1,110 |
Reserve for bad debts | 41,563 | - |
Changes in operating assets and liabilities: | ||
(Increase) decrease in account receivable | (137,662) | 1,451 |
Decrease in funds held in escrow | 24,418 | 926 |
Increase in prepaid expenses and other assets | 1,564 | - |
Increase (decrease) in accounts payable | 95,621 | 1,540 |
Net Cash (Used in) Provided by Operating Activities | 24,771 | (43,130) |
Cash flows from investing activities: | ||
Proceeds from the disposition of property, plant and equipment | 40,000 | - |
Acquisition of property, plant and equipment | (59,349) | (4,433) |
Net Cash (Used in) Investing Activities | (19,349) | (4,433) |
Cash flows from financing activities: | ||
Loan advances from stockholders | (1,339) | 1,679 |
Repayment of loan payable | (4,876) | - |
Net Cash (Used in) Provided by Financing Activities | (6,215) | 1,679 |
Effect of change in foreign currency rate | (252) | (5,538) |
Net (decrease) in cash and cash equivalents | (1,045) | (51,422) |
Cash and cash equivalents – beginning of period | 59,065 | 256,370 |
Cash and cash equivalents – end of period | $ 58,020 | $ 204,948 |
Supplementary Information: | ||
Cash paid during the year for: | ||
Income taxes | $ - | $ - |
Interest | $ 3,659 | $ - |
See Notes to Consolidated Financial Statements
F-4
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002 and 2001
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BankEngine Technologies, Inc. (the "Company" or "BankEngine") is a long distance telecommunications service provider through its 70% owned subsidiary, Platinum Telecommunications, Inc. The Company also is in the business of software development for its new software product, Critical Commerce Suite, to provide video streaming analysis tools and computer consulting, through its wholly owned subsidiaries, Critical Commerce Inc., a Delaware corporation, and Cyberstation Computers and Support, Inc. ("Cyberstation"), a company operating in Canada. The operations of the Company are predominately in Canada, however, the financial statements are expressed in U.S. dollars.
BASIS OF PRESENTATION
The consolidated balance sheet as of November 30, 2002, and the consolidated statements of operations, stockholders' deficiency and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, stockholders' deficiency and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of August 31, 2002 was derived from audited financial statements.
On January 5, 2001, Callmate Telecom International, Inc. ("Callmate") acquired all of the issued and outstanding shares of common stock of WebEngine Technologies, Inc.(WebEngine) in exchange for 12,000,000 common shares of Callmate in a reverse acquisition. 9,200,000 common shares of Callmate held by previous shareholders of Callmate were cancelled in exchange for all of the shares of its subsidiaries which carry on the UK operations of Callmate. The acquisition by the shareholders of WebEngine of a majority of the shares of Callmate has been accounted for as a reverse acquisition. As Callmate became substantially a shell after the removal of the UK operations, no goodwill has been reflected on this acquisition. Although Callmate is the legal acquirer, WebEngine is treated as having acquired Callmate for accounting purposes. Callmate has been accounted for as the successor to W ebEngine. Callmate changed its name to BankEngine Technologies Inc. on March 5, 2001.
WebEngine was incorporated in November 2000 in order to hold the shares of Cyberstation. The shareholders of Cyberstation became the shareholders of WebEngine and therefore WebEngine has been considered to be a successor to Cyberstation. WebEngine has changed its name to Critical Commerce Inc.
The historical financial statements of BankEngine are those of Cyberstation as the company has been accounted for as the successor to Cyberstation.
The estimated income tax costs of the divestiture of the UK operations, in the amount of $50,000, has been treated as a reduction of the assets acquired on the acquisition of the shell company and has been included in income taxes payable.
The acquisition of Callmate, as a reverse acquisition, was reflected as follows;
Cash – escrow
$ 601,457
Accounts payable
(316,000)
Income taxes payable
(50,000)
Capital stock issued
$ 235, 457
The accounts payable assumed on the acquisition of Callmate includes $146,000 for shortfalls that may arise on settlement with a credit card company. Callmate operated a retail and wholesale telecommunications operations and permitted payment by its retail customers through credit card facility. The credit card company is holding funds on deposit to be applied against refused credit card charges and has agreed that the limit of the Company's liability is the amount of the security held on hand. As detailed in Note 11, final settlement of the liability for charge-backs and the receipt of the balance of the funds on deposit is expected during 2003.
As discussed in Note 2, on April 5, 2002, the Company, through its wholly-owned subsidiary, Cyberstation, acquired 70% of the issued and outstanding common stock of Platinum Telecommunications Inc. for the issuance of 1,800,000 common shares of BankEngine Technologies, Inc.
F-5
MANAGEMENT INTENTIONS
The Company has sustained recurring operating losses and negative cash flows from operations. The Company also has a working capital deficit of approximately $186,000 and a stockholders' deficiency of approximately $242,000 at November 30, 2002. Management plans to mitigate these adverse conditions through the following activities:
As discussed in Note 2 the Company has acquired a subsidiary, Platinum Telecommunications, Inc. After careful consideration and examination of international market trends, the Company has decided to re-enter the telecom arena with the acquisition of Platinum. Platinum presents an opportunity for the Company due to its low cost of acquisition combined with existing expertise within the Company leading to possible positive synergies. Internationally, many telecommunications companies have ceased operations and this has allowed for less competition in the market place. Opportunity thus exists for small, cost-conscious, operators who can utilize the latest IP based technology in order to leap frog some competitors. Platinum owns an IP based switch for the purposes of buying and selling long distance telephone time. When combined with substantial IP experti se possessed by the Company, we feel the opportunity exists to succeed in this niche-based market place while mitigating any substantial risk.
Because of BankEngine's expertise in the area of online development and transaction processing research/development, the Company believes that the possible synergies make the transaction advantageous for shareholders. Specifically, the advent of TCP/IP (the backbone language of the Internet) based telephony solutions for Telephony over the last two years will allow the Company to contribute substantially to the technological developments required to further develop Platinum's business. The Company has excellent resources in the area of programming of IP Telephony, which arguably is one of the most important components of IP based Telephony companies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. The earnings of the subsidiaries are included from the date of acquisition for acquisitions accounted for using the purchase method. All inter-company balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known.
F-6
REVENUE RECOGNITION
The Company’s revenues from its telecommunications business is recognized when the earnings process is complete. This occurs when the services have been utilized, collection is probable and pricing is fixed or determinable.
The Company provides computer consulting services in a number of areas including database management, on-line transaction processing and e-mail capabilities. Revenue is recognized as pre-determined milestones are accomplished and consulting services delivered.
FOREIGN CURRENCY
The Company's functional currency is primarily the Canadian dollar. All assets and liabilities recorded in foreign currencies are translated at the current exchange rate. Translation adjustments resulting from this process are charged or credited to other comprehensive income. Revenue and expenses are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in financial expenses.
COMPUTER SOFTWARE DEVELOPMENT
The Company accounts for the cost of developing computer software for sale as research and development expenses until the technological feasibility of the product has been established. To date all costs have been expensed. In the future, after the technological feasibility of the product has been established, at the end of each year the Company will compare any unamortized capital costs to the net realizable value of the product to determine if a reduction in carrying value will be warranted.
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB") statement No. 131, "Disclosure about Segments of an Enterprise and Related Information". The Company has considered its operations and has determined that it operates in two operating segments, software development and telecom, for purposes of presenting financial information and evaluating performance. As such, the accompanying financial statements present information in a format that is consistent with the financial information used by management for internal use.
F-7
RECENT ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Intangible Assets.” The major provisions of SFAS No. 141 were as follows: all business combinations initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited. SFAS No. 142 eliminated the amortization of goodwill and other intangibles and requires an impairment test of their carrying value. An initial impairment test of goodwill and other intangibles must be completed in the year of adoption with at least an annual impairment test thereafter. On January 1, 2002, the Company adopted SFAS No. 142. The Company completed the initial impairment tests in the first quarter of 2002, which did not result in an impairment of goodwill or other intangibles.
The following information represents pro forma net income (loss) and earnings (loss) per share assuming the adoption of SFAS No. 142 in the first quarter of 2001:
For the Three Months Ended November 30, | |||
2002 | 2001 |
Reported net (loss) | $ (8,121) | $ (48,157) |
Addback: Goodwill amortization (net of income tax) | - | - |
$ (8,121) | $ (48,157) | |
Basic (loss) per share: | ||
Reported net (loss) | $ - | $ - |
Addback: Goodwill amortization | - | - |
Adjusted net (loss) | $ - | $ - |
In August 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets. The Company adopted SFAS No. 143 on September 1, 2001 January 1, 2003. The adoption of SFAS 143 did not have a material impact on the Company's results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, effective for fiscal years beginning after December 15, 2001. Under SFAS No. 144, assets held for sale will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Company adopted SFAS No. 144 on September 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. This statement will be effective for the Company for the year ending August 31, 2003. Management believes that adopting this statement will not have a material effect on the Com pany's results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. Adoption of this Statement is required with the beginning of fiscal year 2003. The Company has not yet completed the evaluation of the impact of adopting this Statement.
On October 1, 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 removes acquisitions of financial institutions from the scope of FASB Statement No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions”, and FASB Interpretation No. 9, “Applying APB Opinion Nos. 16 and 17 When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method,” and requires that those transactions be accounted for in accordance with FASB Statements Nos. 141 and 142.
Additionally, this Statement amends FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used.
This statement became effective on October 1, 2002 and did not have a material impact on the Company’s results of operations or financial position.
F-8
2. INVESTMENT IN PLATINUM TELECOMMUNICATIONS INC.
On April 5, 2002, the Company through its subsidiary Cyberstation, acquired 70% of the issued and outstanding stock of Platinum Telecommunications Inc. ("Platinum") for the issuance of 1,800,000 common shares of BankEngine Technologies Inc. The Company acquired Platinum, a long distance telecommunications service provider, in order to reenter the telecommunications industry. The results of operations of Platinum are included in the operations of the Company from April 5, 2002.
Unaudited pro forma results of operations after giving effect to certain adjustments resulting from this acquisition for the period ended November 30, 2001 as if the business combination had occurred at the beginning of each period presented are not material to the financial statements and, accordingly, are not presented herein.
The investment has been accounted for by the purchase method as follows;
Consideration
$18,000
Costs of acquisition
10,000
Total investment
28,000
Share of net assets acquired
2,738
Intangible asset acquired
$25,262
The intangible assets acquired representing contracts and client lists are being amortized over a 24 month period from the date of acquisition.
3. ACCOUNTS RECEIVABLE
November 30, 2002
August 31, 2002
Accounts receivable
$ 193,001
$ 55,031
Allowance for doubtful accounts
(41,563)
-
$
151,438
$
55,031
F-9
4. CAPITAL STOCK
a) Authorized
50,000,000 common stock with a $.001 par value
b) Common stock
The Company had issued and outstanding 14,315,893 common stock at the time of the reverse acquisition in January 2001. As detailed in Note 1, the Company issued 12,000,000 common shares to the shareholders of WebEngine. A total of 9,200,000 shares were cancelled in exchange for the removal of the UK operations in January 2001.
As indicated in Note 2, the Company issued on April 5, 2002, 1,800,000 common stock for a 70% interest in Platinum Telecommunications Inc.
Shares outstanding prior to the reverse acquisition
14,315,893
Issued to shareholders of WebEngine
12,000,000
Cancelled for UK operations
(9,200,000)
Shares outstanding, August 31, 2001
17,115,893
Shares issued in consideration of services
100,000
Acquisition of 70% interest in Platinum Telecommunications Inc.
1,800,000
Shares outstanding, November 30,, 2002
19,015,893
During the second quarter of 2002, the Company agreed to issue 100,000 shares in consideration of services to be provided to the Company. In the third quarter, the Company reacquired the shares as the services were not rendered and the shares are reflected as treasury stock.
F-10
5. CONTINGENCIES AND COMMITMENTS
The Company is liable for shortfalls that may arise upon the settlement with a credit card company. The credit card company has agreed that the limit of the Company’s liability is the amount of security held on hand. The settlement will be based on the transactions to December 31, 2001 and are expected to be settled during 2003.
Funds on deposit | Chargeback liability assumed | Included in statements of operations |
January 5, 2001 – upon acquisition | $ 601,457 | $ 146,000 | $ - |
Refunded during period | (303,006) | - | - |
Foreign currency fluctuation | (6,544) | - | - |
Balance, August 31, 2001 | 291,907 | 146,000 | - |
Refunded during period | (67,841) | - | - |
Foreign currency fluctuation | (5,040) | (2,575) | - |
Estimate of liability adjusted | - | 47,718 | 47,718 |
Balance, August 31, 2002 | $ 219,026 | $ 191,143 | $ 47,718 |
Refunded during period | (28,765) | - | - |
Foreign exchange fluctuation | 3,183 | 2,301 | - |
Estimate of liability adjusted | - | - | - |
Balance, November 30, 2002 | $ 193,444 | $ 193,444 |
The Company has signed a lease commitment for office space in Toronto, Canada which expires February 1, 2003 for premises to house the telecommunication switch. The company is responsible for monthly rent of $800 and additional amounts representing services provided to service the switch in the amount of approximately $1,500 per month. The lease is automatically renewed on an annual basis and can be cancelled with 30 days notice. The Company does not presently intend to cancel the lease.
The Company has signed a lease commitment for office space in Toronto, Canada which expires on April 30, 2004 for its corporate head office. The Company is responsible for monthly rent of approximately $1,100.
Future minimum lease commitments for operating leases are approximately as follows:
Years Ending
August 31,
2003
$ 20,300
2004
8,800
$ 29,100
F-11
6. SEGMENT INFORMATION
Information about operating segments is as follows:
Three months ended November 30, | |||
2002 | 2001 |
Revenues: | ||
Software development | $ - | $ 6,012 |
Telecom | 386,230 | - |
$ 386,230 | $ 6,012 | |
Loss from Operations: | ||
Software development | $ - | $ (48,157) |
Telecom | (5,188) | - |
$ (5,188) | (48,157) | |
Identifiable Assets: | ||
Software development | $ - | $ 523,117 |
Telecom | 508,119 | - |
$ 508,119 | $ 523,117 | |
7. MINORITY INTERESTS
On April 5, 2002, the Company through its wholly-owned subsidiary, Cyberstation, acquired 70% of the issued and outstanding common stock of Platinum. At the time of acquisition, the Company recorded the 30% minority interest of $1,514, which existed as of that date. From the date of acquisition through August 31, 2002 Platinum sustained losses. Minority interests are limited to the extent of their equity capital and losses in excess of minority interest are charged against the majority interests. Subsequently, when the losses reverse, the majority interests should be credited with the amount of minority losses previously absorbed before credit is made to the majority interests. The Company recorded losses of $1,514 to the minority in the quarter ended November 30, 2002 and the balance of minority interest at November 30, 2002 was $-0-.
F-12
8. TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS
The Company had sales to four individual customers in excess of 10% of consolidated net sales for the three months ended November 30, 2002 as follows: The amount and percentages of the Company's consolidated sales were $105,800 (27%), $81,900 (21%), $75,000 (19%), and $ 38,800 (10%).
Cost of sales includes purchases from three suppliers in excess of 10% of consolidated cost of sales for the three months ended November 30, 2002 as follows: The amounts and percentages of the Company's consolidated cost of sales were $128,700 (43%), $49,400 (17%), and $30,700 (10%).
The loss of any of these customers or suppliers could have a material adverse effect on the Company's results of operations, financial position and cash flows.
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are outlined within Note 1 to the consolidated financial statements. Some of those accounting policies require the Company to make estimates and assumptions that affect the amounts it reports. The following items require the most significant judgment and may involve complex estimation:
Revenue recognition: The Company generally recognizes a sale when the service has been provided and risk of loss has passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of an arrangement exists, and the fee is fixed or determinable. The assessment of whether the fee is fixed or determinable considers whether a significant portion of the fee is due after its normal payment terms. If the Company determines that the fee is not fixed or determinable, the Company recognizes revenue at the time the fee becomes due, provided that all other revenue recognition criteria have been met.
The Company assesses collectibility based on a number of factors, including general economic and market conditions, past transaction history with the customer, and the credit-worthiness of the customer. If the Company determines that collection of the fee is not probable, then we will defer the fee and recognize revenue upon receipt of payment.
Allowance for doubtful accounts: The Company continuously monitors payments from its customers and maintains allowances for doubtful accounts, if required, for estimated losses resulting from the inability of its customers to make required payments. When the Company evaluates the adequacy of its allowances for doubtful accounts, it takes into account various factors including its accounts receivable aging, customer credit-worthiness, historical bad debts, and geographic and political risk. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As of November 30, 2002, the Company’s net accounts receivable balance was $151,438 after a provision for doubtful accounts of $41,563.
F-13
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