Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
Schedule B:
1.
NATURE OF OPERATIONS & SIGNIFICANT ACCOUNTING POLICIES
Stream Communications Network, Inc. (“Stream” or the “Company”) mainly provides cable television services. Its business lines also include high-speed internet access. Previous business plans of the implementation and commercialization of animal-waste rendering technologies changed to incineration of animal waste and is available for sale, see note 4 – Discontinued operations. All of its operations are located in Poland.
The company was incorporated on March 28, 1979 by registration of its Memorandum and Articles under theCompany Act of British Columbia, Canada. The company’s stock was consolidated on a one new for 3.9 old shares basis on August 16, 1985 and again consolidated on a one new for three old shares basis on May 29, 1992. On October 19, 2001 the Company changed its name from Trooper Technologies Inc. to Stream Communications Network, Inc.
These interim consolidated financial statements should be read in conjunction with the audited December 31, 2001 annual financial statements.
These interim financial statements follow the same accounting policies and methods of their application as in the December 31, 2001 annual financial statements. These interim consolidated financial statements do not conform in all respects to the requirements of Canadian generally accepted accounting principles for annual financial statements in that they do not include all note disclosures.
These consolidated financial statements include the accounts of the Company and the following subsidiaries. All intercompany transactions and balances have been eliminated.
Percentage
Percentage
ownership
Country of
ownership June
December 31,
Incorporation
30, 2002
2001
EES Waste solutions Limited
Cyprus
100.0%
100.0%
International Eco-Waste Systems S.A. (“Eco-Waste”)
Poland
100.0%
100.0%
Stream Communications Sp. z o.o. (“Stream”)
Poland
100.0%
100.0%
Gimsat Sp. z o.o. (“Gimsat”) – (note 3)
Poland
100.0%
0.2%
Polvoice.com Sp. z o.o. (“Polvoice”)
Poland
95.5%
95.5%
Bielsat.com Sp. z o.o. (“Bielsat”)
Poland
51.0%
51.0%
Acquisitions, intangible assets and goodwill
In July 2001, the Canadian Institute of Chartered Accountants approved the new handbook section 1581,“Business Combinations”, replacing section 1580, that will require all business combinations to use the purchase method of accounting. It has also approved a new section 3062, “Goodwill and Other Intangible Assets”, that will require intangible assets with an indefinite life and goodwill to be tested for impairment on an annual basis. Goodwill and indefinite life intangibles will no longer be amortized. Intangible assets with a definite life will continue to be amortized over their useful lives. The new sections are consistent with those recently approved by the FASB (SFAS No. 141 and SFAS No. 142). The adoption of these new standards is not expe cted to have any material effect on the Company’s financial position, results of operations or its cash flows. Section 1581 is effective for business combinations initiated from July 1, 2001.
The Company has adopted the new recommendations of the Canadian Institute of Chartered Accountants with respect to goodwill and intangibles prospectively from the period ended December 31, 2001.
The Company has changed its accounting policy accordingly no longer amortizing using the straight-line method at a rate of 5%. The company determined that the subscriber base and cable TV licences have indefinite life. The company evaluated its existing intangible assets and goodwill and concluded that no provisions for impairment were required, except for goodwill from the acquisition of PolVoice, now part of discontinued operations (note 4).
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and expenses for the periods reported. Actual results could differ from those estimates.
Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
December 31,
2.
DEFERRED CHARGES
June 30, 2002
2001
Direct and incremental costs of IPO
$
904,524
$
-
Due diligence costs of acquisition targets
265,616
265,616
$
1,170,140
$
265,616
3.
ACQUISITIONS
The company substantially completed the acquisition of Gimsat. The acquisition was accounted for by the purchase acquisition method. The effective date of the acquisition is January 1, 2002, after which the operations of Gimsat are included in these consolidated financial statements. See also note 7, Amount Owing on Gimsat Acquisition.
At the time of acquisition the fair value of the assets and liabilities of Gimsat were:
Cash and cash equivalents
$
10,487
Accounts receivable
100,745
Inventory
3,051
Prepaids
5,790
Property, plant and equipment
2,544,481
Intangible assets (subscriber base)
4,487,188
Bank loans
(251,506)
Accounts payable and accrued liabilities
(31,832)
Future income tax liability
(1,251,828)
Cash consideration
$
5,616,576
4.
DISCONTINUED OPERATIONS
During 2001, the company commenced planned operations in providing cable TV and related cable services. The previous business of meat waste rendering was interrupted when the European Commission imposed a ban on meat and bone meal products due to the risk of Bovine Spongiform Encephalopathy (“BSE”) spread by these products. The Company changed direction in regards to the meat rendering business to avoid liability and uncertainty from the fallout from BSE and applied to change its hazardous waste licence to an incinerator licence. The Company can utilize this license to start operations in the hazardous waste business, but the company has decided to sell this business, as it does not fit with its cable service business. Although agreements were signed to sell Eco-Was te and EES, it was indicated that the purchaser does not intend to conclude the transactions as contemplated. Accordingly the net assets of Eco-Waste were written off.
In view of the Company’s main business and objectives directed towards cable TV, it was decided to discontinue the operations of PolVoice. In this manner, the Company is focused on one business objective. Subsequent to December 31, 2001, the operations of PolVoice were discontinued and the company was liquidated on April 12, 2002.
The statements of operations for the discontinued business operations are:
June 30, 2002
PolVoice
Eco-Waste
Total
Sales
$
(52,023)
$
-
$
(52,023)
Expenses
127,210
253,045
380,255
Amortization
41,425
-
41,425
Write-down of net assets to net realizable value
-
1,956,063
1,956,063
Foreign exchange loss
26,459
45,806
72,265
Loss from discontinued operations
$
143,071
$
2,254,914
$
2,397,985
December 31, 2001
PolVoice
Eco-Waste
Total
Sales
$
(10,347)
$
-
$
(10,347)
Expenses
$
112,905
$
124,182
237,087
Interest expense
120
24
144
Amortization
-
-
-
Write-down of net assets to net realizable value
40,789
-
40,789
Foreign exchange gain
(4)
(471)
(475)
Loss from discontinued operations
$
143,463
$
123,735
$
267,198
Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
The balance sheets for the discontinued business operations are:
June 30, 2002
PolVoice
Eco-Waste
Total
Current assets
$
-
$
1,967
$
1,967
Property, plant and equipment
Land
-
127,928
127,928
Buildings
-
694,111
694,111
Automotive
-
1,112
1,112
Equipment, furniture and fixtures
-
187,729
187,729
Plant construction in progress
-
1,341,131
1,341,131
Foreign exchange
-
-
-
VAT receivable
-
6,078
6,078
Current liabilities
-
(403,993)
(403,933)
Net assets of discontinued operations before net realizable value provision
-
1,956,063
1,956,063
Net realizable value provision
-
(1,956,063)
(1,956,063)
Net assets of discontinued operations
$
-
$
-
$
-
December 31, 2001
PolVoice
Eco-Waste
Total
Current assets
$
142,728
$
123
$
142,851
Property, plant and equipment
Land
-
136,533
136,533
Buildings
-
809,215
809,215
Automotive
-
34,617
34,617
Equipment, furniture and fixtures
76,288
222,657
298,945
Plant construction in progress
-
1,427,891
1,427,891
Goodwill
31,055
-
31,055
VAT receivable
-
29,308
29,308
Current liabilities
(132,994)
(389,386)
(522,380)
Net assets of discontinued operations before net realizable value provision
117,077
2,270,958
2,388,035
Net realizable value provision
(40,789)
-
(40,789)
Net assets of discontinued operations
$
76,288
$
2,270,958
$
2,347,246
5.
PROPERTY, PLANT AND EQUIPMENT
Accumulated
June 30, 2002
Cost
amortization
Net book value
Automobiles
$
226,722
$
50,938
$
175,784
Plant and equipment
11,170,337
2,276,699
8,893,638
$
11,397,059
$
2,327,637
$
9,069,422
Accumulated
December 31, 2001
Cost
amortization
Net book value
Automobiles
$
134,110
$
24,947
$
109,163
Plant and equipment
8,056,598
1,048,961
7,007,637
$
8,190,708
$
1,073,908
$
7,116,800
Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
6.
INTANGIBLE ASSETS
Accumulated
June 30, 2002
Cost
amortization
Net book value
Cable TV licences
$
99,619
$
16,419
$
83,200
Subscriber base
6,187,114
48,921
6,138,193
Goodwill
147,671
5,806
141,865
$
6,434,404
$
71,146
$
6,363,258
Accumulated
December 31, 2001
Cost
amortization
Net book value
Cable TV licences
$
80,508
$
17,525
$
62,984
Subscriber base
2,129,157
52,211
2,076,946
Goodwill
147,671
5,806
141,865
$
2,357,336
$
75,541
$
281,795
7.
AMOUNT OWING ON GIMSAT ACQUISITION
Pursuant to the purchase of Gimsat, a balance of $1,074,000 USD is due in June 2003.
8.
CAPITAL STOCK
(a) Authorized
100,000,000 common shares of no par value.
Number of
(b) Issued
Shares
Price
Share Capital
Balance – October 31, 2001
21,878,778
$
21,310,084
Private placement
901,286
$
1.75
1,577,251
Private placement
4,740,875
$
1.60
7,585,400
Private placement
125,000
$
3.15
393,800
less share issuing costs
(130,863)
Finder’s fee
20,440
$
1.75
35,770
Fair value of warrants
(3,524,347)
Subscriptions receivable
(710,455)
$
1.60
(1,136,728)
Shares allotted for subscriptions receivable
710,455
-
Balance – December 31, 2001
27,666,379
$
26,110,367
Subscriptions received
-
1,136,728
Warrants exercised 4-Mar-02
316,667
$
2.53
800,000
Warrants exercised 31-May-02
451,081
$
1.80
811,946
Fair value of warrants exercised
-
595,559
Balance – June 30, 2002
28,434,127
$
29,454,600
(c) Options
In the Annual General Meeting held on April 30, 2001, the shareholders approved the creation of the “Stock Option Plan” pursuant to which the directors were authorized to issue stock options from time to time to employees, officers, consultants and directors of the Company up to 4,375,755 common shares of the Company at the time of such issue, at a minimum price allowed under the applicable securities law.
Common share purchase options are issued to directors, officers, employees and non-employees of the company with exercise prices which approximate market value at the time the option is granted. Options granted previously vested immediately and have a term of five years. Options granted in this period vest one-quarter every six months with the first quarter vesting immediately. Options are normally granted for a period of five years.
Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
Summary of directors’ and employees’ stock options, warrants and convertible securities outstanding:
Weighted average
Shares
exercise price $
Balance of options at October 31, 2001
1,917,062
$
2.43
Granted
2,807,938
1.60
Forfeited
(355,000)
2.65
Balance of options at December 31, 2001
4,370,000
1.60
Granted
-
-
Forfeited
-
-
Balance of options at June 30,2002
4,370,000
$
1.60
Stock-based compensation
Had compensation cost for the company’s stock option plan been determined based on the fair value at the grant date with the fair value method, the company’s net loss and loss per share would have been increased to the pro forma amounts indicated below:
Six months
Six months
ended June 30,
ended July 31,
2002
2001
Net loss for the period
$
2,537,244
$
2,029,734
Additional stock-based compensation costs
-
-
Pro forma net loss
$
2,537,244
$
2,029,734
Pro forma basic loss per share
$
0.09
$
0.09
The following table summarizes information about fixed stock options outstanding at June 30, 2002:
Options Outstanding
Options Exercisable
Weighted
average
Weighted
Number
Weighted
Number
remaining
average
exercisable at
average
outstanding at
contractual life
exercise
March 31,
exercise
Range of exercise prices
March 31, 2002
(years)
price $
2002
price $
$ 1.41
114,062
1.8
$ 1.41
114,062
$ 1.41
$ 1.60
3,049,938
4.3
$ 1.60
242,000
$ 1.60
$ 2.62
715,000
2.6
$ 2.62
715,000
$2.62
$ 2.65
491,000
3.0
$ 2.65
491,000
$ 2.65
$ 1.41 - $ 2.65
4,370,000
3.8
$ 1.88
1,562,062
$ 2.38
(d) Warrants
The changes in warrants were as follows:
Number of
common shares
Number of
permitted to be
Fair value of
warrants
purchased
Price per share
Expiry date
Warrants
Balance December 31, 2001
1,195,000
597,500
$ 2.85
12-Jul-02
$
356,464
901,286
450,643
$ 2.00
28-Dec-03
228,318
300,000
150,000
$ 1.80
28-Dec-03
103,962
4,440,875
4,440,875
$ 1.80
28-Dec-03
2,753,687
125,000
125,000
$ 3.60
28-Dec-03
49,080
Exercised
3/4/2002
(400,000)
(200,000)
$ 2.85
3/4/2002
(200,000)
(100,000)
$ 2.00
6/4/2002
(16,667)
(16,667)
$ 1.80
5/31/2002
(451,081)
(467,748)
$ 1.80
Balance June 30, 2002
5,894,413
4,979,603
$
3,491,511
Stream Communications Network, Inc.
(formerly Trooper Technologies Inc.)
Notes to Consolidated Financial Statements
June 30, 2002
(in Canadian dollars)
9.
COMMITMENTS AND CONTINGENCIES
As at June 30, 2002, the company is committed under leases for cable networks, office space and automobiles. The minimum payments for the next five years are as follows:
2003
$
421,755
2004
$
51,107
2005
$
53,556
2006
$
58,538
2007
$
58,538
10.
SEGMENTED INFORMATION
The company has one reportable segment.
Geographic information
Revenues are attributed to countries based on location of customer
Six months
Six months
ended June 30,
ended July 31,
Revenues
2002
2001
Canada
$
-
$
-
Poland
1,856,158
939,239
$
1,856,158
$
939,239
December 31,
Capital assets
June 30, 2002
2001
Canada
$
166,788
$
166,788
Poland
15,265,892
9,231,807
$
15,432,680
$
9,398,595
11.
SUBSEQUENT EVENTS
Subsequent to June 30, 2002 the company received $393,700 from the exercise of warrants.
Subsequent to June 30, 2002 the number of directors changed to three members, where Anna Mazur, Grzegorz Namyslowski and Zbigniew Tragarz left the board of directors and joined the advisory committee.
12.
LIST OF DIRECTORS AND OFFICERS
Anna Mazur – Chair & Director
Stan Lis – President & Director
Adam Wojcik – Chief Operating Officer & Director
Casey Forward – Chief Financial Officer
Grzegorz Namyslowski – Director
Zbigniew Tragarz – Director
13.
COMPARATIVE FIGURES
Some of the comparative figures have been reclassified to conform with the presentation adopted in the current period.
14.
BREAKDOWN OF EXPENSES
For the six months ended June 30, 2002
Programming
$
373,760
Installation, materials and maintenance
502,628
Operating costs
500,459
Sales and marketing
120,126
Professional fees
234,506
Internet
111,122
Administrative
349,366
Other
436,042
$
2,628,009
PREPARED BY MANAGEMENT