ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Financial Statements
October 31, 2006
(Unaudited)
(Expressed in Canadian dollars)
| Index | Page |
| Financial Statements | |
| Balance Sheet | 1 |
| Statement of Operations | 2 |
| Statement of Stockholders’ Deficit | 3 |
| Statement of Cash Flows | 4 |
| Notes to Financial Statements | 5-10 |
ENVIRONMENTAL CONTROL CORP.
(A Developmental Stage Company)
Balance Sheet (note 2)
(Expressed in Canadian dollars)
| | October 31, 2006 | | December 31, 2005 |
| | (unaudited) | | |
Assets | | | | |
| | | | |
Current | | | | |
Cash | $ | 1,169 | $ | 1,016 |
Harmonized sales tax receivable | | 1,277 | | 1,277 |
| | | | |
Total Current Assets | | 2,446 | | 2,293 |
Equipment (note 4) | | 15,640 | | 0 |
| | | | |
Total Assets | $ | 18,086 | $ | 2,293 |
| | | | |
Liabilities | | | | |
| | | | |
Current | | | | |
Accounts payable | $ | 106,200 | $ | 0 |
Accrued liabilities | | 56,125 | | 38,500 |
Due to related party (note 6) | | 212,035 | | 209,136 |
| | | | |
Total Liabilities | | 374,360 | | 247,636 |
| | | | |
Stockholders�� Deficit | | | | |
| | | | |
Capital Stock (note 7) | | | | |
Authorized | | | | |
Unlimited number of Class “A” preferred shares | | | | |
Unlimited number of common shares without par value | | | | |
Issued | | | | |
2,220 common shares (2005 – 1,000 common shares) | | 1,000 | | 1,000 |
Subscription Receivable | | (1,000) | | (1,000) |
Deficit Accumulated During the Development Stage | | (356,274) | | (245,343) |
| | | | |
Total Stockholders’ Deficit | | (356,274) | | (245,343) |
| | | | |
Total Liabilities and Stockholders’ Deficit | $ | 18,0186 | $ | 2,293 |
Approved by the Board:
................................................................................................ Director
................................................................................................ Director
1
See notes to financial statements.
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Statement of Operations
(Expressed in Canadian dollars)
| | Ten-Month Period Ended October 31, 2006 | | Year Ended December 31, 2005 | | Cumulative from March 26, 1999 (inception) to October 31, 2006 |
| | (unaudited) | | | | (unaudited) |
Expenses | | | | | | |
Professional fees | $ | 105,300 | $ | 54,591 | $ | 348,525 |
Office and travel | | 2,773 | | 0 | | 2,773 |
Interest and bank charges | | 98 | | 103 | | 2,216 |
Amortization | | 2,760 | | 0 | | 2,760 |
| | | | | | |
Net Loss for Period | $ | (110,931) | $ | (54,694) | $ | (256,274) |
2
See notes to financial statements.
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Statement of Stockholders’ Deficit
Ten-Month Period Ended October 31, 2006
(Expressed in Canadian dollars)
| Common Stock | | Subscription receivable | | Deficit accumulated during the development stage | | Total |
| Shares | | Amount | | | |
| | | | | | | | | |
Balance, January 1, 2000 | 1,000 | $ | 1,000 | $ | (1,000) | $ | (24,621) | $ | (24,621) |
Net loss | 0 | | 0 | | 0 | | (22,836) | | (22,836) |
| | | | | | | | | |
Balance, December 31, 2000 | 1,000 | | 1,000 | | (1,000) | | (47,457) | | (47,457) |
Net loss | 0 | | 0 | | 0 | | (56,302) | | (56,302) |
| | | | | | | | | |
Balance, December 31, 2001 | 1,000 | | 1,000 | | (1,000) | | (103,759) | | (103,759) |
Net loss | 0 | | 0 | | 0 | | (20,257) | | (20,257) |
| | | | | | | | | |
Balance, December 31, 2002 | 1,000 | | 1,000 | | (1,000) | | (124,016) | | (124,016) |
Net loss | 0 | | 0 | | 0 | | (14,264) | | (14,264) |
| | | | | | | | | |
Balance, December 31, 2003 | 1,000 | | 1,000 | | (1,000) | | (138,280) | | (138,280) |
Net loss | 0 | | 0 | | 0 | | (52,369) | | (52,369) |
| | | | | | | | | |
Balance, December 31, 2004 | 1,000 | | 1,000 | | (1,000) | | (190,649) | | (190,649) |
Net loss | 0 | | 0 | | 0 | | (54,694) | | (54,694) |
| | | | | | | | | |
Balance, December 31, 2005 | 1,000 | | 1,000 | | (1,000) | | (245,343) | | (245,343) |
Common shares issued (note 7) | 1,220 | | 0 | | 0 | | 0 | | 0 |
Net loss | 0 | | 0 | | 0 | | (110,931) | | (110,931) |
| | | | | | | | | |
Balance, October 31, 2006 | | | | | | | | | |
(unaudited) | 2,220 | $ | 1,000 | $ | (1,000) | $ | (356,274) | $ | (356,274) |
3
See notes to financial statements.
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Statement of Cash Flows
(Expressed in Canadian dollars)
| | Ten-Month Period Ended October 31, 2006 | | Year Ended December 31, 2005 | | Cumulative from March 26, 1999 (inception) to October 31, 2006 |
| | (unaudited) | | | | (unaudited) |
Operating Activities | | | | | | |
Net loss | $ | (110,931) | $ | (54,694) | $ | (356,274) |
Item not involving cash | | | | | | |
Amortization | | 2,760 | | 0 | | 2,760 |
Changes in Non-Cash Working Capital | | | | | | |
Harmonized sales tax receivable | | 0 | | (1,277) | | (1,277) |
Accounts payable and accrued liabilities | | 105,425 | | 29,345 | | 143,925 |
| | | | | | |
Cash Used in Operating Activities | | (2,746) | | (26,626) | | (210,866) |
| | | | | | |
Financing Activity | | | | | | |
Advances from related party | | 2,899 | | 26,800 | | 212,035 |
| | | | | | |
Inflow of Cash | | 153 | | 174 | | 1,169 |
Cash, Beginning of Period | | 1,016 | | 842 | | 0 |
| | | | | | |
Cash, End of Period | $ | 1,169 | $ | 1,016 | $ | 1,169 |
4
See notes to financial statements.
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
The Company was incorporated on March 26,1999 under the laws of Newfoundland and Labrador. The Company is engaged in the development of emission control devices for small engines.
These financial statements have been prepared on the basis of accounting principles applicable to a going-concern, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has a working capital deficiency of $371,914 as at October 31, 2006 (December 31, 2005 - $245,343) and has incurred losses since its inception resulting in an accumulated deficit of $356,274. Further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going-concern. The Company’s continued existence is dependent on its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.
3. | SIGNIFICANT ACCOUNTING POLICIES |
The financial statements of the Company has been prepared in accordance with generally accepted accounting principles in the United States and are expressed in Canadian dollars.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant areas requiring the use of estimates are accrued liabilities and rate for amortization. Actual results could differ from those estimates and would impact future results of operations and cash flows.
Cash includes cash on hand and balances with banks, net of any overdrafts. Bank borrowings are considered to be financing activities.
Equipment is recorded at cost and amortized over their useful lives on a declining-balance basis at 30%.
Additions during the year are amortized at one-half the annual rate.
5
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| (e) | Impairment of long-lived assets |
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the value of the assets may not be recoverable, as measured by comparing their net book value to the estimated undiscounted cash flows generated by their use. Impaired assets are recorded at fair value, determined principally using discounted future cash flows expected from their use and eventual disposition.
The Company uses the liability method for determining income taxes. Under this method, future tax assets and liabilities are determined according to differences between their respective carrying amounts and tax basis. Future tax assets and liabilities are measured based on enacted or substantively enacted tax rates and laws at the date of the financial statements for the years in which these temporary differences are expected to reverse. Adjustments to these balances are recognized in earnings as they occur.
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at October 31, 2006, the Company had no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
| (h) | Research and development costs |
Research costs are expensed in the period in which they are incurred. Development costs are also expensed unless they meet the criteria for deferral. When development costs meet the criteria for deferral the development costs are deferred to the extent their recoverability can be reasonably assured. Deferred development costs represent the cost of developing specific products and are amortized on a straight-line basis over the expected commercial life of the product. As at October 31, 2006, no development costs have met the criteria for deferral (December 31, 2005 - $nil).
| (i) | Recent accounting pronouncements |
On July 13, 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109, was issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
6
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
| (i) | Recent accounting pronouncements (Continued) |
The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is a recognition process whereby the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more-likely-than-not recognition threshold is calculated to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the balance sheet) for that fiscal year.
| | October 31, 2006 | | December 31, 2005 |
| | | | Accumulated | | | | |
| | Cost | | Amortization | | Net | | Net |
| | | | | | | | |
Website development | $ | 10,000 | $ | 1,500 | $ | 8,500 | $ | 0 |
Office equipment | | 5,400 | | 810 | | 4,590 | | 0 |
Laptop computers | | 3,000 | | 450 | | 2,550 | | 0 |
| | | | | | | | |
| $ | 18,400 | $ | 2,760 | $ | 15,640 | $ | 0 |
Fair values of financial instruments are disclosed in the financial statements when they differ from the carrying amounts.
The fair values of cash, and accounts payable and accrued liabilities approximate their carrying values because of the short-term maturity of these financial instruments. The fair value of amounts due to related party is not determinable because the Company would not be able to enter into similar transactions with unrelated parties.
7
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
DUE TO RELATED PARTY
The amounts due to a related party are unsecured, non-interest bearing and have no formal terms of repayment. The related party consists of a company that is controlled by a common director.
| (a) | During the period, the directors of the Company approved the issuance of an additional 1,220 shares to existing shareholders for no additional consideration. |
| (b) | The Class A preferred shares may from time to time be issued in one or more series with the designation, rights, privileges, restrictions and conditions attached to each series fixed at the discretion of the directors. The Class A preferred shares shall have preference over the common shares in the event of payment of dividends and the distribution of assets or return of capital from liquidation, dissolution or winding up of the corporation. |
The reconciliation of income tax provision computed at statutory rates to the reported income tax provision is as follows:
| | Ten-Month Period Ended October 31, 2006 | | Year Ended December 31, 2005 |
| | | | |
| | 36.12% | | 35.62% |
| | | | |
Income tax benefit computed at Canadian statutory rate | $ | 40,068 | $ | 19,482 |
Unrecognized tax losses | | (40,068) | | (19,482) |
| | | | |
| $ | 0 | $ | 0 |
8
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
8. INCOME TAXES (Continued)
Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s future tax liabilities and assets as at October 31 are as follows:
| Ten-Month Period Ended October 31, 2006 | Year Ended December 31, 2005 |
| |
Future tax assets | | | | |
Capital assets in excess of accounting value | $ | 71,043 | $ | 35,139 |
Net operating loss carried forward | | 81,689 | | 41,538 |
| | | | |
Net future tax assets | | 152,732 | | 76,677 |
Valuation allowance | | (52,732) | | (76,667) |
| | | | |
| $ | 0 | $ | 0 |
At October 31, 2006, the Company has net operating losses available to be carried forward of $226,160 for income tax purposes that expire as follows:
| | | | |
2006 | | | $ | 1,200 |
2007 | | | | 800 |
2008 | | | | 4,400 |
2009 | | | | 900 |
2010 | | | | 800 |
2014 | | | | 52,360 |
2015 | | | | 54,700 |
2026 | | | | 111,000 |
| | | | |
| | | $ | 266,160 |
The valuation allowance reflects the Company's estimate that the tax assets will likely not be realized and consequently have not been recorded in these financial statements.
9
ENVIRONMENTAL CONTROL CORP.
(A Development Stage Company)
Notes to Financial Statements
Ten-Month Period Ended October 31, 2006 (Unaudited) and Year Ended December 31, 2005
(Expressed in Canadian dollars)
SUBSEQUENT EVENTS
On March 20, 2006, the Company entered into an asset acquisition agreement (the "Agreement") with Boss Minerals, Inc. (“Boss”) whereby Boss is to acquire the principal assets including various patent applications and patents pending held by the Company.
Pursuant to the Agreement, Boss will issue 22,500,000 post-split shares of common stock to the Company at closing. In addition, Boss agreed to issue convertible promissory notes to certain creditors of the Company whereby Boss is obligated to pay the creditors of the Company 10% interest per annum on the total amount of $317,379 outstanding to them. Each promissory note holder has the option to convert a portion or the entire outstanding principal into shares of common stock of Boss at Cdn $0.10 per share.
On April 13, 2006, pursuant to the Agreement, Boss changed its name to Environmental Control Corp. and completed a 5:1 stock split.
As at February 9, 2007, the transaction is subject to the approval of the regulatory authority.
10
