Stream Communications Network, Inc. | |||||||||
Amended | |||||||||
Consolidated Financial Statements | |||||||||
For the nine months ended September 30, 2003 | |||||||||
Stream Communications Network, Inc. | |||||||||
Consolidated Balance Sheets | |||||||||
September 30, 2003 and December 31, 2002 | |||||||||
(in Canadian dollars) | |||||||||
|
|
|
|
|
| September 30, 2003 | December 31, 2002 | ||
ASSETS | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ 288,938 | $ 394,234 | |||||||
Accounts receivable | 295,885 | 221,346 | |||||||
Inventory | 10,842 | 14,373 | |||||||
Prepaid expenses and advances | 71,885 | 74,330 | |||||||
|
|
|
| 667,550 | 704,283 | ||||
Deposits | 153,160 | 188,493 | |||||||
Property, plant and equipment (note 3) | 7,213,517 | 9,201,575 | |||||||
Intangibles - (note 4) | 4,407,243 | 5,469,354 | |||||||
Deferred charges - (note 5) | 2,430,293 | 2,019,261 | |||||||
|
|
|
|
|
| $ 14,871,763 | $ 17,582,966 | ||
LIABILITIES | |||||||||
Current Liabilities | |||||||||
Accounts payable and accrued liabilities (note 7) | $ 4,128,000 | $ 4,611,418 | |||||||
Deferred revenue | 147,186 | 187,672 | |||||||
Current portion of long-term debt (note 6) | 28,531 | 108,825 | |||||||
|
|
|
| 4,303,717 | 4,907,915 | ||||
Long-term debt (note 6) | 20,305 | 52,975 | |||||||
Non-controlling interest | 693,799 | 888,259 | |||||||
|
|
|
|
| 5,017,821 | 5,849,149 | |||
SHAREHOLDERS' EQUITY | |||||||||
Capital stock | |||||||||
Authorized | |||||||||
150,000,000 common shares of no par value | |||||||||
Issued and fully paid (note 8) | 32,981,135 | 31,229,685 | |||||||
Contributed surplus | 96,041 | 96,041 | |||||||
Warrants | 2,253,764 | 2,740,669 | |||||||
Cumulative translation account | (181,407) | 1,437,814 | |||||||
Deficit | (25,295,591) | (23,770,392) | |||||||
|
|
|
|
| 9,853,942 | 11,733,817 | |||
|
|
|
|
|
| $ 14,871,763 | $ 17,582,966 | ||
(see note 10 for prior period adjustment) | |||||||||
signed by "Stan Lis" | signed by "Casey Forward" | ||||||||
President | Chief Financial Officer | ||||||||
Stream Communications Network, Inc. | |||||||||
Consolidated Statements of Operations and Deficit | |||||||||
For the nine months ended September 30 | |||||||||
(in Canadian dollars) | |||||||||
|
|
|
| For the three months ended September 30, 2003 | For the three months ended September 30, 2002 | For the nine months ended September 30, 2003 | RESTATED - For the nine months ended September 30, 2002 (note 10) | ||
Revenues | $ 879,324 | $ 910,091 | $ 2,845,459 | $ 2,766,249 | |||||
|
|
|
|
|
|
|
| ||
Administration and services | 240,302 | 260,111 | 668,361 | 800,525 | |||||
Cost of sales | 269,766 | 367,444 | 790,058 | 1,106,157 | |||||
Legal and accounting | 129,805 | 115,656 | 368,502 | 350,162 | |||||
Management costs | 160,362 | 92,556 | 608,124 | 461,196 | |||||
Programming | 206,582 | 174,145 | 620,223 | 547,905 | |||||
Sales and marketing | 63,751 | 62,956 | 343,754 | 173,335 | |||||
|
|
| 1,070,568 | 1,072,868 | 3,399,022 | 3,439,280 | |||
Loss before undernoted items | (191,244) | (162,777) | (553,563) | (673,031) | |||||
Amortization of property, plant and equipment | 166,327 | 279,232 | 554,543 | 668,519 | |||||
Amortization of intangibles and goodwill | 84,849 | - | 269,186 | - | |||||
|
|
|
| 251,176 | 279,232 | 823,729 | 668,519 | ||
Loss before other items |
| (442,420) | (442,009) | (1,377,292) | (1,341,550) | ||||
Other items | |||||||||
Interest income | (3,365) | (4,855) | (6,180) | (11,316) | |||||
Financial expenses | 95,624 | 222,613 | 252,741 | 442,034 | |||||
|
|
| 92,259 | 217,758 | 246,561 | 430,718 | |||
Loss from continuing operations before non-controlling interest | (534,679) | (659,767) | (1,623,853) | (1,772,268) | |||||
Non-controlling interest | (71,876) | (5,200) | (98,654) | (34,463) | |||||
|
|
|
|
|
|
|
| ||
Loss from continuing operations for the period | (462,803) | (654,567) | (1,525,199) | (1,737,805) | |||||
Loss from discontinued operations (note 2) | - | 35,336 | - | (2,362,649) | |||||
Net loss for the period |
| (462,803) | (619,231) | (1,525,199) | (4,100,454) | ||||
Deficit, beginning of period | (24,832,788) | (21,262,413) | (23,770,392) | (17,781,190) | |||||
Deficit, end of period |
| $(25,295,591) | $ (21,881,644) | $ (25,295,591) | $ (21,881,644) | ||||
Loss per share, basic and diluted | |||||||||
Continuing operations | $ (0.02) | $ (0.02) | $ (0.05) | $ (0.06) | |||||
Discontinued operations | - | - | - | (0.08) | |||||
Loss per share |
| $ (0.02) | $ (0.02) | $ (0.05) | $ (0.14) | ||||
Weighted average number of shares | |||||||||
|
| Basic and diluted |
| 29,207,980 | 28,023,911 | 29,207,980 | 28,023,911 | ||
(see note 10 for prior period adjustment) | |||||||||
Stream Communications Network, Inc. | |||||||||
Consolidated Statements of Cash Flows | |||||||||
For the nine months ended September 30 | |||||||||
(in Canadian dollars) | |||||||||
|
|
|
| For the three months ended September 30, 2003 | For the three months ended September 30, 2002 | For the nine months ended September 30, 2003 | RESTATED - For the nine months ended September 30, 2002 (note 10) | ||
Operating Activities | |||||||||
Net loss from continuing operations | $ (462,803) | $ (654,567) | $ (1,525,199) | $ (1,737,805) | |||||
Items not involving cash | |||||||||
Amortization | 251,176 | 279,232 | 823,729 | 668,519 | |||||
Non-controlling interest | (71,876) | (5,200) | (98,654) | (34,463) | |||||
Change in non-cash working capital |
|
| (283,503) | (380,535) | (800,124) | (1,103,749) | |||
Accounts receivable | 308 | 215,759 | (116,516) | 255,941 | |||||
Inventory | (1,091) | 2,422 | 1,153 | 8,650 | |||||
Prepaid expenses and advances | (9,146) | (84,461) | (8,283) | (89,850) | |||||
Accounts payable and accrued liabilities | 13,976 | 357,190 | 47,780 | (7,911) | |||||
Deferred revenue | 9,314 | (7,485) | (9,000) | 83,531 | |||||
Net cash used in operating activities |
| (270,142) | 102,890 | (884,990) | (853,388) | ||||
Net cash provided (used) by discontinued operating activities | - | 84,404 | - | (180,791) | |||||
Net cash provided (used) by operating activities | (270,142) | 187,294 | (884,990) | (1,034,179) | |||||
Financing Activities | |||||||||
Issuance of shares for cash | 373,100 | 393,700 | 1,264,545 | 3,142,374 | |||||
Share subscription | - | - | - | - | |||||
Long-term debt | (25,817) | - | (91,823) | - | |||||
Net cash provided from continuing financing activities | 347,283 | 393,700 | 1,172,722 | 3,142,374 | |||||
Net cash provided from discontinued financing activities | - | - | - | - | |||||
Net cash provided from financing activities | 347,283 | 393,700 | 1,172,722 | 3,142,374 | |||||
Investing Activities | |||||||||
Purchase of property, plant and equipment | (11,007) | (261,838) | (107,046) | (337,666) | |||||
Acquisition of subsidiary | - | - | - | (945,168) | |||||
Deferred charges | (58,787) | (201,731) | (420,443) | (243) | |||||
Net cash used in continuing investing activities | (69,794) | (463,569) | (527,489) | (1,283,077) | |||||
Net cash used in discontinued investing activities | - | - | - | - | |||||
Net cash used in investing activities |
| (69,794) | (463,569) | (527,489) | (1,283,077) | ||||
Foreign exchange effect on cash |
| 40,184 | (379,022) | 134,461 | (887,132) | ||||
|
|
| |||||||
Change in cash and cash equivalents |
| 47,531 | (261,597) | (105,296) | (62,014) | ||||
Cash and cash equivalents at beginning of period | 241,407 | 414,856 | 394,234 | 215,273 | |||||
Cash and cash equivalents at end of period |
| $ 288,938 | $ 153,259 | $ 288,938 | $ 153,259 | ||||
(see note 10 for prior period adjustment) | |||||||||
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 2 - 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, 2002 annual financial statements. | ||||||||
These interim financial statements follow the same accounting policies and methods of their application as in the December 31, 2002 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. | ||||||||
|
|
|
| Country of Incorporation | Percentage ownership September 30, 2003 | Percentage ownership December 31, 2002 | ||
EES Waste solutions Limited | Cyprus | 100.0% | 100.0% | |||||
International Eco-Waste Systems S.A. ("Eco-Waste") | Poland | 0.0% | 0.0% | |||||
Stream Communications Sp. z o.o. ("Stream") | Poland | 100.0% | 100.0% | |||||
Gimsat Sp. z o.o. ("Gimsat") - (note 3) | Poland | 100.0% | 100.0% | |||||
Polvoice.com Sp. z o.o. ("PolVoice") | Poland | 0.0% | 0.0% | |||||
Bielsat.com Sp. z o.o. ("Bielsat") | Poland | 51.0% | 51.0% | |||||
The preparation of financial statements in conformity with Canadian 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. |
2. | 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 was intending to utilize this licence to start operations in the hazardous waste business, but the company decided to sell this business, as it did not fit with its cable service business. | |||||||||
On September 30, 2002 Eco-Waste was sold to a arm’s length buyer. The terms of the agreement included a nominal down payment and payments due of $500,000 USD of which $250,000 is due on each of December 31, 2003 and December 31, 2004. Because of uncertainty in this sector of the market, these payments due in 2003 and 2004 are valued at nil. | |||||||||
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. The operations of PolVoice were discontinued and the company is being liquidated. | |||||||||
The statements of operations for the discontinued business operations are: | |||||||||
For the nine months ended September 30, 2003 | PolVoice | Eco-Waste | Total | ||||||
Sales | $ - | $ - | $ - | ||||||
Expenses | - | - | - | ||||||
Amortization | - | - | - | ||||||
Write-down of net assets to net realizable value | - | - | - | ||||||
Foreign exchange loss | - | - | - | ||||||
Loss from discontinued operations |
|
| $ - | $ - | $ - | ||||
For the nine months ended September 30, 2002 | PolVoice | Eco-Waste | Total | ||||||
Sales | $ (51,600) | $ - | $ (51,600) | ||||||
Expenses | $ 126,171 | $ 183,920 | 310,091 | ||||||
Amortization | 41,088 | 41,733 | 82,821 | ||||||
Write-down of net assets to net realizable value | - | 1,982,139 | 1,982,139 | ||||||
Foreign exchange gain | (32,572) | 71,770 | 39,198 | ||||||
Loss from discontinued operations |
|
| $ 83,087 | $ 2,279,562 | $ 2,362,649 | ||||
The balance sheets for the discontinued business operations are: | |||||||||
September 30, 2003 |
|
|
| PolVoice | Eco-Waste | Total | |||
Total assets | $ - | $ - | $ - | ||||||
Total liabilities | |||||||||
Net assets of discontinued operations before net realizable value provision | - | - | - | ||||||
Net realizable value provision | - | - | - | ||||||
Net assets of discontinued operations |
|
| $ - | $ - | $ - | ||||
December 31, 2002 |
|
|
| PolVoice | Eco-Waste | Total | |||
Total assets | $ - | $ - | $ - | ||||||
Total liabilities | |||||||||
Net assets of discontinued operations before net realizable value provision | - | - | - | ||||||
Net realizable value provision | - | - | - | ||||||
Net assets of discontinued operations |
|
| $ - | $ - | $ - | ||||
3. | PROPERTY, PLANT AND EQUIPMENT | ||||||||
September 30, 2003 |
|
|
| Cost | Accumulated amortization | Net book value | |||
Automobiles | $ 270,921 | $ 101,050 | $ 169,871 | ||||||
Buildings, offices | 2,088,989 | 638,610 | 1,450,379 | ||||||
Cable television network equipment | 7,341,882 | 2,048,867 | 5,293,015 | ||||||
Furniture and fixtures | 359,923 | 292,772 | 67,151 | ||||||
Computer software | 71,494 | 54,663 | 16,831 | ||||||
Plant construction-in-progress | 216,270 | - | 216,270 | ||||||
|
|
|
| $ 10,349,479 | $ 3,135,962 | $ 7,213,517 | |||
December 31, 2002 |
|
|
| Cost | Accumulated amortization | Net book value | |||
Automobiles | $ 331,814 | $ 110,468 | $ 221,346 | ||||||
Buildings, offices | 2,523,921 | 517,429 | 2,006,492 | ||||||
Cable television network equipment | 8,770,650 | 2,056,039 | 6,714,611 | ||||||
Furniture and fixtures | 375,344 | 265,698 | 109,646 | ||||||
Computer software | 85,828 | 60,778 | 25,050 | ||||||
Plant construction-in-progress | 124,430 | - | 124,430 | ||||||
|
|
|
| $ 12,211,987 | $ 3,010,412 | $ 9,201,575 |
4. | INTANGIBLE ASSETS | |||||||
September 30, 2003 |
|
|
| Cost | Accumulated amortization | Net book value | ||
Cable TV licences | $ 94,479 | $ 44,878 | $ 49,601 | |||||
Subscriber base | 4,617,251 | 401,474 | 4,215,777 | |||||
Goodwill | 147,671 | 5,806 | 141,865 | |||||
|
|
|
| $ 4,859,401 | $ 452,158 | $ 4,407,243 | ||
December 31, 2002 |
|
|
| Cost | Accumulated amortization | Net book value | ||
Cable TV licences | $ 116,217 | $ 23,335 | $ 92,882 | |||||
Subscriber base | 5,565,072 | 330,465 | 5,234,607 | |||||
Goodwill | 147,671 | 5,806 | 141,865 | |||||
|
|
|
| $ 5,828,960 | $ 359,606 | $ 5,469,354 | ||
5. | DEFERRED CHARGES | September 30, 2003 | December 31, 2002 | |||||
Direct and incremental costs of financing | $ 2,252,887 | $ 1,841,855 | ||||||
Due diligence costs of acquisition targets | 177,406 | 177,406 | ||||||
|
|
|
|
| $ 2,430,293 | $ 2,019,261 |
6. | LONG-TERM DEBT | |||||||
September 30, 2003 | December 31, 2002 | |||||||
Loan balances, current portion | $ 28,531 | $ 108,825 | ||||||
Loan balances, long term portion | 20,305 | 52,975 | ||||||
Total |
|
|
|
| $ 48,836 | $ 161,800 | ||
Bank loans are secured by the fixed assets of the Company repayable monthly at a rate of $10,890 per month, until August 2003 when the payments reduce to $5,376 per month. Interest in charged at the prime rate in Poland plus ½% . |
7. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | ||||
Included in accounts payable and accrued liabilities is approximately $1,522,401 (December 31, 2002 - $1,637,715) owed on the acquisition of GimSat, and $1,137,611 (2002 - $616,812) owed for fees related to the cost of financing. |
8. | CAPITAL STOCK | |||||||
(a) Authorized | ||||||||
150,000,000 common shares of no par value | ||||||||
(b) Issued |
|
|
|
| Number of Shares | Price | Share Capital | |
Balance - December 31, 2002 | 27,666,379 | $ 26,110,367 | ||||||
Subscriptions received | - | 1,136,728 | ||||||
Warrants exercised | 200,000 | $ 2.85 | 570,000 | |||||
Warrants exercised | 100,000 | $ 2.00 | 200,000 | |||||
Warrants exercised | 1,036,770 | $ 1.80 | 1,866,186 | |||||
Fair value of warrants exercised | - | 1,346,404 | ||||||
Balance - December 31, 2002 |
|
| 29,003,149 |
| $ 31,229,685 | |||
Warrants exercised | 702,526 | $ 1.80 | 1,264,545 | |||||
Fair value of warrants exercised |
|
|
| 486,905 | ||||
Balance - September 30, 2003 |
|
| 29,705,675 |
| $ 32,981,135 | |||
(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 laws. | ||||||||
Common share purchase options are issued to directors, officers, employees and non-employees of the company with exercise prices which approximate market values at the time the option is granted. Options granted previous to November 1, 2001 vested immediately and have a term of five years. Options granted after vest one-quarter every year with the first quarter vesting immediately and the remaining options vesting if the Company's shares are trading on an exchange and the trading price for the previous 30 days has exceeded 15% of the exercise price compounding each year to 45% in the third year. Options are normally granted for a period of five years. | ||||||||
Summary of directors' and employees' stock options, warrants and convertible securities outstanding: | ||||||||
|
|
|
| Shares | Weighted average exercise price $ | |||
Balance of options at December 31, 2002 | 4,370,000 | 1.88 | ||||||
Granted | - | - | ||||||
Forfeited | - | - | ||||||
Balance of options at September 30, 2003 |
|
|
| 4,370,000 | $ 1.88 |
| ||
The following table summarizes information about fixed stock options outstanding at September 30, 2003: | ||||||||
Options Outstanding | Options Exercisable | |||||||
Range of exercise prices | Number outstanding at September 30, 2003 | Weighted average remaining contractual life (years) | Weighted average exercise price $ | Number exercisable at September 30, 2003 | Weighted average exercise price $ | |||
$1.41 | 114,062 | 0.5 | $ 1.41 | 114,062 | $ 1.41 | |||
1.60 | 3,049,938 | 3.1 | 1.60 | 943,985 | 1.60 | |||
2.62 | 715,000 | 1.3 | 2.62 | 715,000 | 2.62 | |||
2.65 | 491,000 | 1.7 | 2.65 | 491,000 | 2.65 | |||
|
| 4,370,000 | 2.8 | $ 1.88 | 2,264,047 | $ 2.14 | ||
(d) Warrants (expiry date of December 28, 2003 was extended to December 28, 2004) | ||||||||
The changes in warrants were as follows: | Number of common shares permitted to be purchased | |||||||
|
| Number of warrants | Price per share | Expiry date | Fair value of Warrants | |||
Outstanding December 31, 2002 | 701,286 | 350,643 | $2.00 | 28-Dec-03 | $ 228,318 | |||
300,000 | 150,000 | 1.80 | 28-Dec-03 | 103,962 | ||||
3,404,105 | 3,404,105 | 1.80 | 28-Dec-03 | 2,359,309 | ||||
125,000 | 125,000 | 2.25 USD | 28-Dec-03 | 49,080 | ||||
Total balance December 31, 2002 | 4,530,391 | 4,029,748 |
|
| $ 2,740,669 | |||
Outstanding September 30, 2003 | 701,286 | 350,643 | $2.00 | 28-Dec-04 | $ 228,318 | |||
300,000 | 150,000 | 1.80 | 28-Dec-04 | 103,962 | ||||
2,908,858 | 2,908,858 | 1.80 | 28-Dec-04 | 2,016,065 | ||||
125,000 | 125,000 | 2.25 USD | 28-Dec-04 | 49,080 | ||||
Total Balance September 30, 2003 | 4,035,144 | 3,534,501 |
|
| $ 2,397,425 |
9. | SEGMENTED INFORMATION | |||||||
The Company operates primarily in one segment, being cable TV services and in two geographic locations, being Canada and Poland. | ||||||||
Geographic information | ||||||||
Revenues are attributed to countries based on location of customer | ||||||||
Revenues |
|
|
|
| For the nine months ended September 30, 2003 | RESTATED - For the nine months ended September 30, 2002 (note 10) | ||
Canada | $ - | $ - | ||||||
Poland | 2,845,459 | 2,766,249 | ||||||
|
|
|
|
| $ 2,845,459 | $ 2,766,249 | ||
Property, plant, equipment and intangibles |
|
| September 30, 2003 | December 31, 2002 | ||||
Canada | $ 15,379 | $ 24,923 | ||||||
Poland | 11,605,381 | 14,646,006 | ||||||
|
|
|
|
| $ 11,620,760 | $ 14,670,929 | ||
10. | RESTATEMENT | |||||||
The prior nine-month period was amended and restated as a result of an accounting error in regards to intercompany sales. An intercompany billing set up in the subsidiary company and shown as revenue in the Polish subsidiary as required by Polish accounting standards, was not eliminated on consolidation. Revenue has been reduced by $261,597 for the previous nine-month period for these consolidated financial statements. | ||||||||
11. | OFFICERS AND DIRECTORS | |||||||
Stan Lis - President, CEO and director | ||||||||
Adam Wojcik, Chief Operating Officer and director | ||||||||
Iwona Kozak, Vice President Corporate Affairs and directors | ||||||||
Casey Forward, Chief Financial Officer | ||||||||
Jan Rynkiewicz, director | ||||||||
Boyce Butler, director |