International Hi Tech Industries (IHITF) Inactive
Filed: 30 Nov 05, 12:00am
NOTICE THAT FINANCIAL STATEMENTS HAVE NOT BEEN REVIEWED BY AN AUDITOR
International Hi-Tech Industries Inc. (the "Issuer")
Interim Financial Statements for the period ended September 30, 2005
The Issuer's auditors have not reviewed or been involved in the preparation of these Financial Statements.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
[logo "Morgan & Company"]
NOTICE TO READER
We have compiled the consolidated balance sheet of International Hi-Tech Industries Inc. as at September 30, 2005 and the consolidated statements of operations and deficit, cash flows, and changes in shareholders' equity for the nine month period then ended from information provided by management. We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that these statements may not be appropriate for their purposes.
Vancouver, B.C.
November 23, 2005
"Morgan & Company"
Chartered Accountants
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
SEPTEMBER 30 | DECEMBER 31 | |||
ASSETS | ||||
Current | ||||
Cash and cash equivalents | $ | 541,714 | $ | 1,890,030 |
Receivables | 85,119 | 189,779 | ||
Prepaid expenses | 196,769 | 191,857 | ||
823,602 | 2,271,666 | |||
Notes Receivable And Accrued Interest (Note 2) | - | - | ||
Property, Plant And Equipment(Note 3) | 17,604,107 | 17,698,273 | ||
Intangible Assets (Note 4) | 1,757,458 | 1,981,156 | ||
$ | 20,185,167 | $ | 21,951,095 | |
LIABILITIES | ||||
Current | ||||
Accounts payable and accrued liabilities | $ | 1,395,641 | $ | 724,951 |
Accrued interest payable | 236,366 | 223,841 | ||
Loans payable (Note 5) | 83,500 | 83,500 | ||
Current portion of long term debt (Note 6) | 1,516,355 | 1,400,950 | ||
3,231,862 | 2,433,242 | |||
Redeemable Preferred Shares(Note 8) | 252,119 | 582,404 | ||
Deposits Received Related To Joint Venture Option Agreements | 7,431,032 | 7,431,032 | ||
Long Term Debt(Note 6) | 4,642,912 | 5,042,985 | ||
Promissory Notes Payable (Note 7) | 615,466 | 52,000 | ||
16,173,391 | 15,541,663 | |||
Contingencies(Note 10) | ||||
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
SEPTEMBER 30 | DECEMBER 31 | |||
SHAREHOLDERS' EQUITY | ||||
Share Capital(Note 8) | ||||
Authorized: | ||||
An unlimited number of common shares without par value | ||||
An unlimited number of Class A preferred shares without par value, of which 60,000,000 have been designated as follows: | ||||
Issued and outstanding: | ||||
Common Shares | ||||
122,175,065 at September 30, 2005 and 107,175,065 at December 31, 2004 (of which 8,673,984 shares are held in escrow) | $ | 56,987,431 | $ | 55,974,931 |
Contributed Surplus | 883,564 | 883,564 | ||
Non-Controlling Interest Deficit Relating To Dividends | (568,048) | (568,048) | ||
Deficit Accumulated During The Development Stage | (53,291,171) | (49,881,015) | ||
4,011,776 | 6,409,432 | |||
$ | 20,185,167 | $ | 21,951,095 | |
Approved by the Board of Directors: | ||
/s/ Dr. Owen A. Anderson | /s/ Thomas Po | |
The accompanying notes are an integral part of these consolidated financial statements
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Expenses | ||||||||||
Audit and accounting | $ | 12,389 | $ | 24,075 | $ | 45,030 | $ | 104,234 | $ | 1,149,247 |
Corporation and capital taxes | - | - | - | - | 536,023 | |||||
Consulting fees | 104,996 | 137,110 | 433,410 | 419,633 | 3,352,353 | |||||
Depreciation and amortization | 200,972 | 309,802 | 605,918 | 924,230 | 7,460,273 | |||||
Directors' and officers' fees | 48,000 | 22,109 | 146,072 | 98,597 | 1,416,429 | |||||
Finders', loan guarantee and commitment fees | 1,700 | 104,250 | 2,041 | 105,250 | 3,644,217 | |||||
General expense | 44,871 | 97,427 | 184,055 | 276,293 | 2,898,903 | |||||
Legal | 32,679 | 200,319 | 159,756 | 292,745 | 5,852,187 | |||||
Insurance | 29,538 | 18,956 | 51,371 | 61,427 | 532,014 | |||||
Interest and foreign exchange | 115,623 | 89,054 | 688,927 | 257,072 | 6,208,277 | |||||
Investor relations | - | 16,470 | 7,412 | 28,547 | 147,907 | |||||
Product representation costs | 14,037 | 28,878 | 75,426 | 106,706 | 2,474,550 | |||||
Telephone, fax and cellular | 10,046 | 5,949 | 30,692 | 20,781 | 649,474 | |||||
Office rent | 25,683 | 25,500 | 78,415 | 76,500 | 963,305 | |||||
Promotion and presentation | 23,609 | 4,486 | 81,005 | 12,084 | 401,247 | |||||
Property taxes | 30,846 | 210,949 | 57,545 | 229,166 | 1,137,684 | |||||
Repairs and maintenance | 11,259 | 17,788 | 45,441 | 51,072 | 805,366 | |||||
Travel and business promotion | 36,954 | 63,715 | 91,802 | 174,709 | 3,508,918 | |||||
Transfer agent and filing fees | 9,476 | 15,309 | 31,274 | 43,292 | 448,694 | |||||
Stock based compensation | - | - | - | 578,564 | - | |||||
Wages and benefits | 272,942 | 241,698 | 769,333 | 771,101 | 5,316,015 | |||||
1,025,620 | 1,633,844 | 3,584,925 | 4,632,003 | 48,903,083 | ||||||
Less: Interest and other income | (22,819) | (25,950) | (174,769) | 335,946 | (2,182,682) | |||||
Loss From Operations | (1,002,801) | (1,659,794) | (3,410,156) | (4,296,057) | (46,720,401) | |||||
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT (Continued)
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Loss From Operations | $ | (1,002,801) | $ | (1,659,794) | $ | (3,410,156) | $ | (4,296,057) | $ | (46,720,401) |
Deferred Project Development Cost Written Down | - | - | - | - | (4,638,737) | |||||
Gain On Cancellation Of License Rights | - | - | - | - | 7,276,101 | |||||
Foreign Exchange Gain On Cancellation Of License Rights | - | - | - | - | 1,035,200 | |||||
Gain On Termination Of Option | - | - | - | - | 259,990 | |||||
Gain On Issue Of Treasury Shares By Subsidiary Company | - | - | - | - | 1,216,580 | |||||
Legal Settlement | - | - | - | - | (200,000) | |||||
Write Down Of Note Receivable And Interest (Note 2) | - | - | - | - | (1,573,192) | |||||
Write Down Of Property, Plant And Equipment (Note 3) | - | - | - | - | (6,833,188) | |||||
Net Loss For The Period Before Non-Controlling Interest | (1,002,801) | (1,659,794) | (3,410,156) | (4,296,057) | (50,177,647) | |||||
Non-Controlling Interest | - | - | - | - | (1,246,355) | |||||
Net Loss For The Period | (1,002,801) | (1,659,794) | (3,410,156) | (4,296,057) | $ | (51,424,002) | ||||
Preferred Share Dividends | - | - | - | - | ||||||
Net Loss Available To Common Shareholders | $ | (1,002,801) | $ | (1,659,794) | $ | (3,410,156) | $ | (4,296,057) | ||
Income (Loss) Per Share, Basic and diluted | $ | (0.01) | $ | (0.02) | $ | (0.02) | $ | (0.04) | ||
Weighted Average Common Shares Outstanding | 122,175,065 | 104,310,472 | 113,878,362 | 104,285,203 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Cash Flows From Operating Activities | ||||||||||
Net loss for the period | $ | (1,002,801) | $ | (1,659,794) | $ | (3,410,156) | $ | (4,296,057) | $ | (51,424,002) |
Adjustments To Reconcile Loss To Net Cash Used By Operating Activities | ||||||||||
Unrealized exchange adjustment on notes receivable | - | 54,068 | - | 6,602 | 273,569 | |||||
Accrued interest on notes receivable | - | 6,404 | - | 58,459 | (461,341) | |||||
Accrued interest on promissory notes payable | 8,174 | 500 | 15,466 | 500 | 17,465 | |||||
Accrued interest on other long term financing agreement (Note 6) | - | - | - | - | 107,339 | |||||
Amortization of discount on redeemable preferred shares | 3,421 | 48,525 | 49,855 | 145,574 | 632,259 | |||||
Interest on redeemable preferred shares | - | - | 299,310 | - | 299,310 | |||||
Gain on cancellation of license rights | - | - | - | - | (7,275,501) | |||||
Realized exchange gain on cancellation of license rights | - | - | - | - | (1,216,580) | |||||
Gain on issue of treasury shares by subsidiary company | - | - | - | - | (1,035,200) | |||||
Shares issued for loan guarantee and commitment fees | - | - | - | - | 1,792,315 | |||||
Non-controlling portion of income (loss) in subsidiary | - | - | - | - | 1,246,355 | |||||
Write down of deferred project development costs | - | - | - | - | 4,638,737 | |||||
Write down of note receivable | - | - | - | - | 1,573,192 | |||||
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Write down of property, land and equipment | $ | - | $ | - | $ | - | $ | - | $ | 6,833,188 |
Stock based compensation | - | - | - | 578,564 | 578,564 | |||||
Depreciation and amortization | 200,972 | 309,802 | 605,918 | 924,230 | 7,460,273 | |||||
(Increase) Decrease in assets | ||||||||||
Receivables | (17,468) | (31,166) | 104,660 | (54,365) | (85,119) | |||||
Prepaid expenses | 51,836 | (1,514) | (4,912) | 179,315 | (196,771) | |||||
Increase (Decrease) in liabilities | ||||||||||
Accounts payable and accrued liabilities | 669,025 | (2,785) | 670,690 | (230,709) | 1,395,641 | |||||
Accrued interest payable | 4,175 | (86,049) | 12,525 | (85,128) | 236,366 | |||||
Net Cash Used In Operating Activities | (82,666) | (1,362,009) | (1,656,644) | (2,773,015) | (34,609,941) | |||||
Cash Flows From Investing Activities | ||||||||||
Acquisition of property, plant and equipment | (122,910) | 9,745 | (288,054) | (221,192) | (30,341,347) | |||||
Acquisition of intangible assets | - | - | - | (135,672) | (2,982,636) | |||||
Project development costs | - | - | - | - | (4,638,737) | |||||
Notes receivable | - | 12,716 | - | (78,430) | (1,385,419) | |||||
Net asset deficiency of legal parent at date of reverse take-over transaction | - | - | - | - | (306,774) | |||||
Net non-current assets of subsidiary | - | - | - | - | (146,418) | |||||
Net Cash Used In Investing Activities | (122,910) | 22,461 | (288,054) | (435,294) | (39,801,331) | |||||
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Cash Flows From Financing Activities | ||||||||||
Shares issued for cash and share subscriptions | $ | - | $ | 70,000 | $ | 1,012,500 | $ | 70,000 | $ | 48,938,413 |
Issuance of preferred shares | - | - | - | - | 6,256,703 | |||||
Redemption of preferred shares | - | - | (679,450) | - | (679,450) | |||||
Dividends paid | - | - | - | - | (1,560,392) | |||||
Contributed surplus | - | - | - | - | 305,000 | |||||
Non-controlling interest in Canadian Hi-Tech Manufacturing Ltd. | - | - | - | - | 184,319 | |||||
Issuance of shares by subsidiary company for cash | - | - | - | - | 1,557,500 | |||||
Dividends paid by subsidiary to non-controlling shareholders | - | - | - | - | (2,339,642) | |||||
Cash deposits received related to joint venture option agreements | - | - | - | - | 15,741,733 | |||||
Increase in amount due to related parties | - | - | - | - | 1,848,483 | |||||
Repayment of amount due to related parties | - | - | - | - | (1,848,483) | |||||
Repayment in loans payable | - | (209,326) | - | (209,326) | 83,500 | |||||
Repayment of advances payable | - | - | - | - | (363,021) | |||||
Increase in advances payable | - | - | - | - | 363,021 | |||||
Repayment of long term debt | (22,494) | (109,046) | (83,019) | (348,707) | (3,950,820) | |||||
Increase in long term debt | - | 4,500,000 | - | 4,500,000 | 10,019,771 | |||||
Proceeds from mortgages payable | - | - | - | - | 3,105,160 | |||||
Repayment of mortgages payable | (65,945) | - | (201,649) | - | (3,306,809) | |||||
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
THREE MONTHS ENDED | NINE MONTHS ENDED | PERIOD FROM INCEPTION SEPTEMBER 12 1990 TO SEPTEMBER 30 | ||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||
Increase in promissory note payable | $ | 225,000 | $ | 50,000 | $ | 548,000 | $ | 50,000 | $ | 598,000 |
Increase in project advance payable | - | - | - | - | 2,000,000 | |||||
Repayment of project advance payable | - | - | - | - | (2,000,000) | |||||
Increase in deferred revenue | - | - | - | 5,000 | - | |||||
Net Cash Provided By (Used In) Financing Activities | 136,561 | 4,301,628 | 596,382 | 4,066,967 | 74,952,986 | |||||
Net Increase (Decrease) In Cash and Cash Equivalents | (69,015) | 2,962,080 | (1,348,316) | 858,658 | 541,714 | |||||
Cash and Cash Equivalents, Beginning Of Period | 610,729 | 660,550 | 1,890,030 | 2,763,972 | - | |||||
Cash and Cash Equivalents, End Of Period | $ | 541,714 | $ | 3,622,630 | $ | 541,714 | $ | 3,622,630 | $ | 541,714 |
Supplemental Disclosure Of Cash Flow Information | ||||||||||
Interest paid | $ | 99,853 | $ | 25,302 | $ | 313,771 | $ | 91,350 | $ | 3,277,552 |
Taxes paid | $ | - | $ | - | $ | - | $ | - | $ | - |
The accompanying notes are an integral part of these consolidated financial statements
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
COMMON STOCK | PREFERRED STOCK | |||||||||||||
NUMBER OF SHARES | AMOUNT | NUMBER OF SHARES | AMOUNT | CONTRIBUTED SURPLUS | NON-CONTROLLING INTEREST DEFICIT RELATING TO DIVIDENDS | DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE | TOTAL | |||||||
( | ||||||||||||||
Balance, December 31, 2001 | 65,009,121 | $ | 36,328,211 | 6,186,114 | $ | 6,184,163 | $ | 305,000 | $ | - | $ | (25,052,077) | $ | 17,765,297 |
Issuance of common stock | 34,500,000 | 13,726,700 | - | - | - | - | - | 13,726,700 | ||||||
Conversion of preferred stock to common stock | 3,022,250 | 3,491,700 | (3,925,000) | (3,491,700) | - | - | - | - | ||||||
Share subscriptions | - | - | - | (652,460) | - | - | - | (652,460) | ||||||
Non-Controlling interest deficit relating to dividends | - | - | - | - | - | (21,882) | - | (21,882) | ||||||
Preferred share dividends | - | - | - | - | - | - | (404,162) | (404,162) | ||||||
Net loss | - | - | - | - | - | - | (2,285,156) | (2,285,156) | ||||||
Balance, December 31, 2002 | 102,531,371 | 53,546,611 | 2,261,114 | 2,040,003 | 305,000 | (21,882) | (27,741,395) | 28,128,337 | ||||||
Conversion of preferred stock to common stock | 1,741,058 | 2,040,003 | (2,261,114) | (2,040,003) | - | - | - | - | ||||||
Non-Controlling interest deficit relating to dividends | - | - | - | - | - | (1,417,448) | - | (1,417,448) | ||||||
Preferred share dividends | - | - | - | - | - | - | (124,933) | (124,933) | ||||||
Net loss | - | - | - | - | - | - | (10,530,573) | (10,530,573) | ||||||
Balance, December 31, 2003 | 104,272,429 | 55,586,614 | - | - | 305,000 | (1,439,330) | (38,396,901) | 16,055,383 | ||||||
Issuance of common stock | 250,000 | 70,000 | - | - | - | - | - | 70,000 | ||||||
Issuance of common stock in exchange for a loan guarantee (Note 8) | 2,652,636 | 318,317 | - | - | - | - | - | 318,317 | ||||||
Stock based compensation (Note 8) | - | - | - | - | 578,564 | - | - | 578,564 | ||||||
Non-controlling interest | - | - | - | - | - | 871,282 | - | 871,282 | ||||||
Net loss | - | - | - | - | - | - | (11,484,114) | (11,484,114) | ||||||
Balance, December 31, 2004 | 107,175,065 | 55,974,931 | - | - | 883,564 | (568,048) | (49,881,015) | 6,409,432 | ||||||
Balance, December 31, 2004 | 107,175,065 | $ | 55,974,931 | - | $ | - | $ | 883,564 | $ | (568,048) | $ | (49,881,015) | $ | 6,409,432 |
Issuance of common stock | 15,000,000 | 1,012,500 | - | - | - | - | - | 1,012,500 | ||||||
Net loss | - | - | - | - | - | - | (3,410,156) | (3,410,156) | ||||||
Balance, September 30, 2005 | 122,175,065 | $ | 56,987,431 | - | $ | - | $ | 883,564 | $ | (568,048) | $ | (53,291,171) | $ | 4,011,776 |
The accompanying notes are an integral part of these consolidated financial statements
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries - Canadian Hi-Tech Manufacturing Ltd. (65% owned), IHI International Holdings Ltd. (50.7% owned), IHI Construction Ltd. (100% owned), IHI Sales Ltd. (100% owned), IHI Developments Ltd. (100% owned), IHI Manufacturing Ltd. (100% owned) and IHI Planning Ltd. (100% owned). All significant intercompany balances and transactions have been eliminated.
During the years ended December 31, 2003 and 2002, the Company paid dividends to non-controlling shareholders of subsidiaries. Dividends paid to the non-controlling shareholders of the Company's subsidiary, IHI International Holdings Ltd., less the non-controlling shareholders share of income of IHI International Holdings Ltd., exceeded the amount of the net equity of the Company's subsidiary attributable to the non-controlling shareholders by $568,048 and $1,439,330 respectively, at December 31, 2004 and 2003. These amounts were recorded as a reduction to shareholders' equity as the Company anticipates their recovery from the non-controlling shareholders' share of future net income generated by the subsidiary.
b) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.
c) Deferred Project Development Costs
The Company defers architectural, design consulting and other costs directly related to the ongoing development and commercialization of its pre-fabrication building product and flexible design program is to be amortized against related revenues when production commences. During 2003, the Company determined that previously deferred costs were impaired and recorded a $4,638,737 write-down related to these costs.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated amortization and are amortized using the declining-balance basis method at annual rates as follows:
Automotive | 30% |
Office furniture and equipment | 20% |
Computer equipment | 30% |
Other machinery and equipment | 20% |
Paving | 8% |
Land and building held for development are recorded at cost. Site preparation costs related to raw land are also recorded at cost.
e) Intangible Assets
Patent application costs are amortized on a straight-line basis over ten years once a patent is secured.
License rights are amortized on a straight-line basis over ten years.
On an annual basis or when impairment indicators arise, the Company evaluates the future recoverability of property, plant and equipment, intangible assets and deferred project development costs. Impairment losses or write downs to fair value are recorded in the event the net book value of such assets exceeds the estimated undiscounted future cash flows attributable to such assets.
f) Stock Based Compensation
The Company's stock-based compensation plan is described in Note 8(iii).
The Company has adopted the recommendations of CICA Handbook Section 3870 - "Stock Based Compensation and Other Stock Based Payments" to account for stock based transactions with officers, directors, and outside consultants. Accordingly the fair value of stock options is charged to operations or resource property costs as appropriate, with an offsetting credit to contributed surplus. The fair value of stock options which vest immediately is recorded at the date of grant; the fair value of options which vest in future is recognized on a straight-line basis over the vesting period. Any consideration received on exercise of stock options together with the related portion of contributed surplus is credited to share capital.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes using enacted tax rates in effect in the years in which the differences are expected to reverse. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided.
h) Interest in Joint Ventures
At the present time, the Company does not have any joint venture interests, however, on commencement of joint venture activities, the Company intends to account for its interest in joint ventures using the proportionate consolidation method whereby the Company will include its pro-rata share of each of the assets, liabilities, revenues and expenses that are subject to joint control with similar items in the Company's financial statements.
i) Deposits received related to joint venture option agreements and gain on cancellation of License Rights
Payments related to non-refundable fees and deposits from joint venture option agreements are deferred in the accounts and recorded as revenue upon the transfer of the significant risks and rewards of ownership of the license rights which the Company has determined will occur upon the formation of a joint venture and the Company's ability to deliver the technology to exploit the license has been established.
Proceeds from deposits received from memorandums of understanding that have been entered by the Company are recorded as gain on cancellation of license rights in the period that the notice of cancellation of the memorandum of understanding is issued.
j) Foreign Currency Translation
Transactions recorded in foreign currencies have been translated into Canadian dollars as follows:
i) monetary items at the rate prevailing at the balance sheet date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the rate in effect during the applicable accounting period.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) Foreign Currency Translation (Continued)
The resulting foreign exchange gains and losses are included in income in the current period.
k) Loss Per Share
Loss per common share is calculated based on the weighted average number of common shares outstanding during the year. The effects of potential issuances of 5,200,000 (2003 - 34,500,000) common shares on the exercise of options and share purchase warrants and conversion of preferred shares would be anti-dilutive and, therefore, basic and diluted loss per share are the same for the years reported.
l) Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, redeemable preferred shares, receivables, notes receivable and accrued interest, accounts payable and accrued interest payable, loans payable, long term debt and promissory note payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of the financial instruments other than redeemable preferred shares approximate carrying values due to their short term nature or bearing interest rates that are similar to current market rates. The fair value of the redeemable preferred shares was calculated using discounted cash flow analysis and approximated the carrying value as the implicit interest rate is similar to current market rates.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Redeemable Preferred Shares
The Class B preferred shares issued by Canadian Hi-Tech Manufacturing Ltd. (Canadian Hi-Tech), the Company's 65% owned subsidiary, which are redeemable at $100 per share at the option of the preferred shareholder, were reclassified as financial liabilities in 2002 as the shares will become fully redeemable in 2007 due to the amendment of the escrow shares agreement in 2002. The redeemable preferred shares were recorded at the redemption value of $1,100,000. The difference between the proceeds of the Class B preferred shares and the redemption value was recorded as a discount of the redeemable preferred shares and is being amortized over the period from the date of reclassification to the earliest date that the preferred shares are eligible to be redeemed. Accordingly, $1,100,000 was charged as a discount against the redemption value and is being amortized on a straight line basis over 68 months resulting in an annual charge to interest expense. During the nine month period ended Sep tember 30, 2005, $679,450 of the Class B preferred shares were redeemed.
n) Use of Estimates
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and the recording of liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues and expenses during the reporting periods. Actual results may materially differ from those estimates. The financial statement accounts which required management to make significant estimates and assumptions in determining carrying value included note receivable and accrued interest, property, plant and equipment, real estate, intangible assets and future income taxes.
2. NOTES RECEIVABLE AND ACCRUED INTEREST
The notes receivable are repayable on demand with interest at 6.5% per annum, and the notes and related accrued interest are collateralized by the issuer's license rights to the Company's building technology. During 2004, the Company determined that the note receivable and accrued interest had been impaired and recorded a $1,573,192 write-down related to the note receivable and accrued interest.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
3. PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 2005 | ||||||
COST | ACCUMULATED AMORTIZATION AND WRITE DOWNS | NET BOOK VALUE | ||||
Land | $ | 2,987,121 | $ | - | $ | 2,987,121 |
Paving | 53,533 | 10,852 | 42,681 | |||
Automotive | 152,703 | 137,725 | 14,978 | |||
Office furniture and equipment | 318,568 | 275,183 | 43,385 | |||
Computer equipment | 185,069 | 143,944 | 41,125 | |||
Other machinery and equipment | 5,952,111 | 3,937,782 | 2,014,329 | |||
Building | 12,460,488 | - | 12,460,488 | |||
$ | 22,109,593 | $ | 4,505,486 | $ | 17,604,107 | |
DECEMBER 31, 2004 | ||||||
COST | ACCUMULATED AMORTIZATION AND WRITE DOWNS | NET BOOK VALUE | ||||
Land | $ | 3,432,134 | $ | - | $ | 3,432,134 |
Paving | 52,616 | 7,211 | 45,405 | |||
Automotive | 152,703 | 133,376 | 19,327 | |||
Office furniture and equipment | 318,568 | 264,572 | 53,996 | |||
Computer equipment | 179,678 | 132,366 | 47,312 | |||
Other machinery and equipment | 5,980,204 | 3,582,313 | 2,397,891 | |||
Building construction in progress | 11,702,208 | - | 11,702,208 | |||
$ | 21,818,110 | $ | 4,119,837 | $ | 17,698,273 | |
Other machinery and equipment includes assets acquired under capital lease with an original cost of $3,117,416 (2004 - $3,117,416). Accumulated amortization provided on this other machinery and equipment totalled $2,592,650 (2004 - $2,461,459).
In 2004, as a result of the litigation discussed in Note 11(b), the Company has been unable to complete its Hopcott Road production facility to the point where commercial operations can be pursued. As a result of delays in this regard and other factors, management determined that an impairment in the Company's building and machinery and equipment had occurred and has recorded a $6,833,188 impairment write down (2003 and 2002; $Nil).
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
4. INTANGIBLE ASSETS
SEPTEMBER 30, 2005 | ||||||
COST | ACCUMULATED AMORTIZATION | NET BOOK VALUE | ||||
Patent application costs | $ | 2,782,636 | $ | 1,040,178 | $ | 1,742,458 |
License rights | 200,000 | 185,000 | 15,000 | |||
$ | 2,982,636 | $ | 1,225,178 | $ | 1,757,458 | |
DECEMBER 31, 2004 | ||||||
COST | ACCUMULATED AMORTIZATION | NET BOOK VALUE | ||||
Patent application costs | $ | 2,782,636 | $ | 831,480 | $ | 1,951,156 |
License rights | 200,000 | 170,000 | 30,000 | |||
$ | 2,982,636 | $ | 1,001,480 | $ | 1,981,156 | |
5. LOANS PAYABLE
SEPTEMBER 30 | DECEMBER 31 | |||
Repayable on demand at various interest rates | $ | 83,500 | $ | 83,500 |
6. LONG TERM DEBT
Obligations Under Capital Lease
SEPTEMBER 30 | DECEMBER 31 | |||
Various Lease Obligations | ||||
Weighted average interest at 18.47% (2004 - 17.64%), maturing in November 2005, combined monthly lease payments of principal and interest of $1,790 | $ | 8,453 | $ | 21,678 |
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
6. LONG TERM DEBT (Continued)
Other Long Term Obligations
Mortgage Payable | ||||
Interest at 7% per annum, maturing September 1, 2007, monthly payments of principal and interest of $34,619. The mortgage is collateralized by the Hopcott Road real estate and an officer guarantee (Note 8 (ii)). | $ | 4,271,968 | $ | 4,473,617 |
Other Mortgages | ||||
Weighted average interest at 7.75% (2004 - 7.67%), maturing between April 2005 and May 2008, combined monthly payments of principal and interest of $10,899. Two of the three mortgages are collateralized by Speen Road real estate. | 964,173 | 997,829 | ||
Other long term financing agreements | ||||
Weighted average interest at 12.00% (2004 - 11.71%), collateralized by equipment, matured in 2004 with combined monthly payments of principal and interest of $51,326. A portion of these amounts are presently under dispute, see Note 10(b) for further details. | 914,673 | 950,811 | ||
6,150,814 | 6,422,257 | |||
6,159,267 | 6,443,935 | |||
Less: Current portion | 1,516,355 | 1,400,950 | ||
$ | 4,642,912 | $ | 5,042,985 |
The principal payments required on obligations under capital lease and long term debt is approximately as follows:
CAPITAL LEASES | OTHER LONG TERM OBLIGATIONS | TOTAL | ||||
2005 | $ | 8,453 | $ | 1,107,829 | $ | 1,116,282 |
2006 | $ | - | $ | 137,217 | $ | 137,217 |
2007 | $ | - | $ | 4,265,352 | $ | 4,265,352 |
2008 | $ | - | $ | 640,416 | $ | 640,416 |
2009 and thereafter | $ | - | $ | - | $ | - |
$ | 8,453 | $ | 6,150,814 | $ | 6,159,267 | |
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
7. PROMISSORY NOTES PAYABLE
The promissory note payable, in the amount of $50,000, is unsecured, payable on or before August 27, 2006 and accrues interest at 12% per annum and is due to a company controlled by a director.
The promissory note payable, in the amount of $50,000, is unsecured, payable on or before February 22, 2007 and accrues interest at prime per annum.
The promissory note payable, in the amount of $100,000, is unsecured, payable on or before March 17, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $100,000, is unsecured, payable on or before June 15, 2007 and accrues interest at 4% per annum.
The promissory notes payable, in the amount of $75,000, is unsecured, payable on or before June 20, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $25,000, is unsecured, payable on or before June 20, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $25,000, is unsecured, payable on or before June 30, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $50,000, is unsecured, payable on or before July 4, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $100,000, is unsecured, payable on or before July 11, 2007 and accrues interest at 5% per annum.
The promissory note payable, in the amount of $25,000, is unsecured, payable on or before July 20, 2007 and accrues interest at 4% per annum.
The promissory note payable, in the amount of $25,000, is unsecured, payable on or before July 25, 2007 and accrues interest at 4% per annum.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
8. SHARE CAPITAL
i) Escrow Shares
As at September 30, 2005, included in the Company's issued and outstanding shares, 8,673,984 were held in escrow to be released on the basis of 2,168,496 every six months. These shares were originally issued to the president of the Company and an associate of the president. On January 18, 2000, upon approval by the TSX venture exchange ("TSX-V"), the escrow shares were transferred to a company indirectly owned by the president.
ii) Shares Issued in Exchange for a Loan Guarantee
On November 12, 2004 the Company issued 2,652,636 common shares to a company controlled by the Company's Chief Operating Officer in exchange for his guarantee on the new first mortgage (Note 6). As these common shares were issued for consideration other than cash, the shares were recorded at the quoted market value of the Company's common shares on the agreement date and recorded as a 2004 expense.
iii) Stock Options
In accordance with the policies of the Toronto Stock Exchange - Venture, the Company may grant stock options to directors, senior officers, employees or contractors in consideration of them providing their services to the Company. The exercise price of the stock options must be at least equal to the fair market value on the date of the grant and the optionee's rights under the plan vest immediately. Stock options are granted for a maximum term of five years and the number of shares under option cannot exceed 10% of the Company's total issued and outstanding shares.
Subject to shareholders and TSX-V approval, the Company established a Stock Option Plan (the "Plan"). The maximum number of shares that the Company may reserve for issuance under the Plan at any point in time is 10% of the outstanding shares. Under the Plan, the Company may grant options to its directors, officers, employees, management company employees and consultants. The term of these options is five years. The Board of Directors will determine the terms and matters relating to any awards under the Plan including the exercise price and the number of common shares granted.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
8. SHARE CAPITAL (Continued)
iii) Stock Options (Continued)
As at September 30, 2005, the Company had outstanding options for the purchase of additional common shares as follows:
NUMBER OF SHARES | PRICE PER SHARE | EXPIRY DATE | |||
5,200,000 | $ | 0.20 | October 6, 2008 | ||
A summary of the changes in stock options for the years presented is as follows:
OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE | ||
Outstanding and exercisable, December 31, 2003 | - | $ | - |
Granted | 5,200,000 | 0.20 | |
Outstanding and exercisable, December 31, 2004 and September 30, 2005 | 5,200,000 | $ | 0.20 |
The fair value of each option granted in 2004 was estimated on the grant date using the Black-Scholes option pricing model assuming no dividends were paid, a volatility of the Company's share price of 105%, an annual risk free interest rate of 3.27% and an expected life equal to the life of the options. The fair value of the 2004 options granted was $0.11 per share.
In connection with the vesting of the stock options, the Company included in consulting fees for the year ended December 31, 2004 stock option compensation in the amount of $578,564 (2003 - $Nil).
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
8. SHARE CAPITAL (Continued)
iv) Share Purchase Warrants
As at September 30, 2005, the Company had outstanding share purchase warrants for the purchase of additional common shares as follows:
NUMBER OF SHARES | PRICE PER SHARE | EXPIRY DATE | |||
15,000,000 | $ | 0.10 | May 31, 2007 | ||
A summary of the changes in share purchase warrants for the periods presented is as follows:
OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE | ||
Outstanding and exercisable, December 31, 2004 | - | $ | - |
Issued | 15,000,000 | 0.10 | |
Outstanding and exercisable, September 30, 2005 | 15,000,000 | $ | 0.10 |
v) Class B Preferred Shares of the Subsidiary
The Company's 65% owned subsidiary, Canadian Hi-Tech., has 11,000 Class B preferred shares outstanding, which are redeemable at $100 per share at the option of the preferred shareholder. With the amendment of the Company's escrow share agreement in 2002, the Class B Preferred Shares of the subsidiary will become fully redeemable on August 21, 2007, the date on which all of the Company's shares are released from escrow.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
8. SHARE CAPITAL (Continued)
v) Class B Preferred Shares of the Subsidiary (Continued)
Redemption Value | Discount | Carrying Value | ||||
Initial recognition | $ | 1,100,000 | $ | (1,100,000) | $ | - |
Amortization of discount | - | 194,208 | 194,208 | |||
Balance, December 31, 2002 | $ | 1,100,000 | $ | (905,792) | $ | 194,208 |
Amortization of discount | - | 194,098 | 194,098 | |||
Balance, December 31, 2003 | $ | 1,100,000 | $ | (711,694) | $ | 388,306 |
Amortization of discount | - | 194,098 | 194,098 | |||
Balance, December 31, 2004 | $ | 1,100,000 | $ | (517,596) | $ | 582,404 |
Redemption of preferred shares | (679,450) | - | (679,450) | |||
Unamortized discount charged to interest expense as a result of the redemption of preferred shares prior to maturity | - | 299,310 | 299,310 | |||
Amortization of discount | - | 49,855 | 49,855 | |||
Balance, September 30, 2005 | $ | 420,550 | $ | (168,431) | $ | 252,119 |
9. RELATED PARTY TRANSACTIONS
During the quarter ended September 30, 2005, the Company paid the following:
a) $54,000 (2004 - $54,000) for management fees to a company controlled by the family of an officer.
b) $58,500 (2004 - $58,500) for rent to a company controlled by a relative of an officer.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
9. RELATED PARTY TRANSACTIONS (Continued)
c) $52,072 (2004 - $54,000) for directors and officers fees.
d) $115,573 (2004 - $79,310) for consulting services to a company controlled by the family of an officer.
The Company is party to a consulting fee agreement under which a company controlled by a director, and a second company controlled by this same director's family, will provide all building engineering designs for the Company's projects for an initial fee of 4% of the factory cost of the initial design, and 1% of the factory cost for subsequent use of the same design. The Company has also agreed to pay a royalty to the second company referred to above equal to 1% of net profits realized from the license of the technology being used by the Company.
IHI International Holdings Ltd. ("IHI-International"), a Bermuda company and a 51% owned subsidiary of the Company, holds the right to use the building technology in all countries in the world other than Canada. The Company has agreed to use its best efforts to offer, to its shareholders, shares of IHI-International.
The above-noted transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed by the related parties.
10. CONTINGENCIES
a) Interim joint venture option agreements entered into by the Company and, for which the Company has received payments totalling US$1,900,000, provide that there must not be any change in the Company's senior management. The interim agreements further provide that if there is such a change in management, the Company's joint venture partner has the right to cancel the interim agreement and the Company will have to repay the license fee plus an amount equal to 20% of the license fee payment compounded annually calculated from the date of such payment. The Company has delivered a general security agreement to their joint venture partner to secure the Company's obligations.
INTERNATIONAL HI-TECH INDUSTRIES INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited - see Notice to Reader)
(Stated in Canadian Dollars)
10. CONTINGENCIES (Continued)
b) On March 26, 2002 the Company commenced an action against Fanuc Robotics Canada Ltd., General Electric Capital Canada Inc., Fanuc Robotics North America Inc. and Merrill Lynch in the Supreme Court of British Columbia. The action is for damages arising from the claimed fundamental failure to deliver and implement a "Flexible Panel Welding System" in accordance with agreed specifications as sold to the Company. Without limitation, the action is also for injunctive relief enjoining Merrill Lynch from paying funds pursuant to a letter of credit relating to the sale of said system. Statements of Defence have been filed on behalf of the Defendants, Fanuc Robotics Canada Ltd., Fanuc Robotics North America Inc., and General Electric Capital Canada Inc. The Defendants, Fanuc Robotics Canada Ltd. and Fanuc Robotics North America Inc., have filed a counterclaim against the Company for judgement in the amount of $87,645, plus interest, as well as other relief, respecting which the Company has filed a Defence seeking dismissal of said counterclaim with costs (see Note 6). The Defendant, General Electric Capital Canada Inc., has filed a counterclaim against the Company for judgement in the amount of $780,509, plus interest, as well as other relief, respecting which the Company has filed a Defence seeking dismissal of said counterclaim with costs. The Defendant Fanuc Robotics Canada Ltd. has notified the Company that it takes the position Fanuc Robotics Canada Ltd. complied with its obligations under the contract related to the Flexible Panel Welding System, which the Company also disputes. The outcome of these matters is not presently determinable.