EXHIBIT 6
Globetech Ventures Corp.
(A development stage company)
Consolidated Financial Statements
(Expressed in Canadian dollars)
September 30, 2002
Globetech Ventures Corp.
(A development stage company)
Consolidated Financial Statements
(Expressed in Canadian dollars)
September 30, 2002
Page
Auditors' Report
3
Consolidated Statements of Operations
4
Consolidated Statement of Shareholders’ Equity (Deficiency)
5
Consolidated Balance Sheets
6
Consolidated Statements of Cash Flows
7
Consolidated Schedules of Operating Expenses
8
Notes to the Consolidated Financial Statements
9
PAGE 3
Auditors' Report
To the Shareholders of
Globetech Ventures Corp.
We have audited the consolidated balance sheets of Globetech Ventures Corp. as at September 30, 2002 and the consolidated statements of operations, shareholders’ equity (deficiency) and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at September 30, 2002 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a consistent basis.
The financial statements as at September 30, 2001 and 2000 and for the years then ended were audited by another auditor who expressed an opinion without reservation on those statements in their report dated February 20, 2002.
Vancouver, Canada
“MacKay LLP”
March 28, 2003
Chartered Accountants
Comments by Auditors for U.S. Readers on Canada – United States Reporting Differences
In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements. Our report to the shareholders is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors report when they are adequately disclosed in the financial statements. Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected results of operations f or each of the years in the three year period ended September 30, 2002 and shareholders’ equity as at September 30, 2002, 2001 and 2000 to the extent summarized in note 9 to the consolidated financial statements.
Vancouver, Canada
“MacKay LLP”
March 28, 2003
Chartered Accountants
PAGE 4
Globetech Ventures Corp.
(A development stage company)
Consolidated Statements of Operations
(Expressed in Canadian dollars)
Period from
December 1991
to September 30,
For the year ended September 30,
2002
2002
2001
2000
Sales | $ 846,207 | $ - | $ - | $ - |
Cost of Sales | (1,362,702) | - | - | - |
Gross Margin | (516,495) | - | - | - |
Operating Expenses(schedule) | 8,600,017 | 279,864 | 566,117 | 379,665 |
Loss before other items and minority interest | (9,116,512) | (279,864) | (566,117) | (379,665) |
Other Items | ||||
Equity loss from investment (note 4) | (102,449) | - | (102,449) | - |
Foreign exchange gain (loss) | (194,933) | (204) | 18,144 | (6,742) |
Gain (loss) on settlement of debt | 124,886 | - | - | - |
Impairment of notes receivable (note 3) | (1,367,945) | (77,555) | (1,290,390) | - |
Interest income | 339,608 | 159 | 88,998 | 2,826 |
Miscellaneous income | 106,378 | - | - | - |
Write-down of investment (note 4) | (89,626) | - | (89,626) | - |
Write-down of mineral properties | (432,443) | - | - | - |
Recovery (write-off) of subsidiaries (note 9) | (19,099,507) | 37,751 | 118,748 | (35,688) |
(20,716,031) | (39,849) | (1,256,575) | (58,998) | |
Loss before minority interest | (29,832,543) | (319,713) | (1,822,692) | (438,663) |
Minority interest | 1,067,567 | - | - | - |
Loss for the period | $ (28,764,976) | $ (319,713) | $ (1,822,692) | $ (438,663) |
Basic and diluted loss per share | $ (0.03) | $ (0.27) | $ (0.10) | |
PAGE 5
Globetech Ventures Corp.
(A development stage company)
Consolidated Statement of Shareholders’ Equity (Deficiency)
(Expressed in Canadian dollars)
Number of shares | Common shares issued and fully paid | Equity portion of Convertible debentures | Deficit accumulated during the development stage | Total | |
Balance December 31, 1991 | - | $ - | $ - | $ - | $ - |
Issuance of shares for cash | |||||
Private placements | 1,280,001 | 159,500 | - | - | 159,500 |
Loss for the period | - | - | - | (32,080) | (32,080) |
Balance September 30, 1992 | 1,280,001 | 159,500 | - | (32,080) | 127,420 |
Issuance of shares for cash | |||||
By way of prospectus | 600,000 | 360,000 | - | - | 360,000 |
Exercise of options | 112,000 | 67,200 | - | - | 67,200 |
Exercise of warrants | 100,000 | 30,000 | - | - | 60,000 |
Issuance of shares for property | 150,000 | 90,000 | - | - | 90,000 |
Share issue costs | - | (93,205) | - | - | (83,205) |
Loss for the year | - | - | - | (105,902) | (105,902) |
Balance September 30, 1993 | 2,242,001 | 653,495 | - | (137,982) | 515,513 |
Issuance of shares for cash | |||||
Private placements | 400,000 | 576,000 | - | - | 576,000 |
Share issue costs | - | (60,622) | - | - | (60,622) |
Loss for the year | - | - | - | (403,571) | (403,571) |
Balance September 30, 1994 | 2,642,001 | 1,168,873 | - | (541,553) | 627,320 |
Issuance of shares for cash | |||||
Private placements | 418,000 | 1,121,400 | - | - | 1,121,400 |
Exercise of options | 204,000 | 347,440 | - | - | 347,440 |
Issuance of shares for finders fees | 35,069 | 99,570 | - | - | 99,570 |
Share issue costs | - | (108,570) | - | - | (108,570) |
Loss for the year | - | - | - | (3463,044 | (343,044) |
Balance September 30, 1995 | 3,299,070 | 2,628,713 | - | (884,597) | 1,744,116 |
Issuance of shares for cash | |||||
Private placements | 1,488,000 | 6,178,000 | - | - | 6,178,000 |
Exercise of options | 1,128,584 | 4,161,930 | - | - | 4,161,930 |
Issuance of shares for finders fees | 75,624 | 197,379 | - | - | 197,379 |
Share issue costs | - | (365,874) | - | - | (365,874) |
Loss for the year | - | - | - | (1,533,474) | (1,533,474) |
Balance September 30, 1996 | 5,991,278 | 12,800,148 | - | (2,418,071) | 10,382,077 |
Issuance of shares for cash | |||||
Exercise of options | 243,000 | 639,730 | - | - | 639,730 |
Exercise of warrants | 845,447 | 3,696,723 | - | - | 3,696,723 |
Issued on conversion of debt | 2,464,950 | 4,821,079 | - | - | 4,821,079 |
Issued of common shares for | |||||
acquisition of subsidiary | 171,282 | 1,124,745 | - | - | 1,124,745 |
Issuance of shares for finders fees | 65,298 | 457,086 | - | - | 457,086 |
Share issue costs | - | (472,562) | - | - | (472,562) |
Equity portion of convertible | |||||
Debentures | - | - | 169,760 | - | 169,760 |
Loss for the year | - | - | - | (2,822,786) | (2,822,786) |
Balance September 30, 1997 | 9,781,225 | 23,066,949 | 169,760 | (5,240,857) | 17,995,852 |
Contingent consideration on | |||||
acquisition of subsidiary | - | (1,086,901) | - | - | (1,086,901) |
Issued on conversion of debt | 277,776 | 261,679 | (59,219) | - | 202,460 |
10,059,031 | 22,241,727 | 110,541 | (5,240,857) | 17,111,411 | |
Capital stock consolidation (7.5:1) | (8,717,827) | - | - | - | - |
Issued on conversion of debt | 221,234 | 519,691 | (110,541) | - | 409,150 |
Issued on settlement of debt | 550,000 | 111,152 | - | - | 111,152 |
Loss for the year | - | - | - | - | (20,236,904) |
Balance September 30, 1998 | 2,112,438 | 22,872,570 | - | (25,477,761) | (2,605,191) |
Issued on settlement of debt | 1,433,364 | 1,604,029 | - | - | 1,604,029 |
Loss for the year | - | - | - | (706,147) | (706,147) |
Balance September 30, 1999 | 3,545,802 | 24,476,599 | - | (26,183,908) | (1,707,309) |
Issuance of shares for cash | |||||
Exercise of options | 24,100 | 56,321 | - | - | 56,321 |
Exercise of warrants | 227,273 | 370,612 | - | - | 370,612 |
Issued on conversion of debt | 1,830,073 | 1,078,550 | - | - | 1,078,550 |
Issued on settlement of debt | 220,748 | 489,660 | - | - | 489,660 |
Subscriptions received in advance | - | 369,875 | - | - | 369,875 |
Share issue costs | - | (74,141) | - | - | (74,141) |
Loss for the year | - | - | - | (438,663) | (438,663) |
Balance September 30, 2000 | 5,847,996 | 26,767,476 | - | (26,622,571) | 144,905 |
Issued on private placement | 2,000,000 | 456,840 | - | - | 456,840 |
Share issue costs | - | (45,492) | - | - | (45,492) |
Issued for subscriptions received | |||||
in advance | 227,273 | 369,875 | - | - | 369,875 |
Subscriptions received in advance | - | (369,875) | - | - | (369,875) |
Issued on acquisition of equity | |||||
investment (note 4) | 500,000 | 192,075 | - | - | 192,075 |
Issued on settlement of debt | 914,670 | 502,784 | - | - | 502,784 |
Loss for the year | - | - | - | (1,822,692) | (1,822,692) |
Balance September 30, 2001 | 9,489,939 | 27,873,683 | - | (28,445,263) | (571,580) |
Loss for the year | - | - | - | (319,713) | (319,713) |
Balance September 30, 2002 | 9,489,393 | $ 27,873,683 | $ - | $(28,764,976) | $ (891,293) |
PAGE 6
Globetech Ventures Corp.
(A development stage company)
Consolidated Balance Sheets
(Expressed in Canadian dollars)
September 30,
2002
2001
Assets | ||
Current | ||
Cash and cash equivalents | $ 1,871 | $ 81,297 |
Accounts receivable | 18,910 | - |
Due from related party (note 5) | 20,186 | - |
Goods and services tax recoverable | 4,947 | 980 |
Prepaid expenses | 3,054 | - |
48,968 | 82,277 | |
Capital assets(note 6) | 5,799 | 8,172 |
$ 54,767 | $ 90,449 | |
Liabilities | ||
Current | ||
Accounts payable and accrued liabilities | $ 166,961 | $ 193,915 |
Due to related parties (note 5) | 192,743 | 75,171 |
Loans from related parties (note 7) | 549,834 | 392,943 |
909,538 | 662,029 | |
Deposit(note 9) | 36,522 | - |
946,060 | 662,029 | |
Shareholders’ equity (deficiency) | ||
Capital stock(note 10) | ||
Authorized 20,000,000 common shares | ||
Issued 9,489,939 common shares (2001 - 9,489,939) | 27,873,683 | 27,873,683 |
Deficit accumulated during the development stage | (28,764,976) | (28,445,263) |
(891,293) | (571,580) | |
$ 54,767 | $ 90,449 |
Nature and continuance of operations(note 1)
Contingencies(note 14)
Approved by the Directors:
“Dil Gujral”_______________
Director
“C. Allan Brant”____________
Director
PAGE 7
Globetech Ventures Corp.
(A development stage company)
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Period from
December 1991
to September 30,
For the year ended September 30,
2002
2002
2001
2000
Cash provided by (used for) | ||||
Operating activities | ||||
Loss for the period | $(28,764,976) | $ (319,713) | $ (1,822,692) | $ (438,663) |
Add (deduct) items not affecting cash | ||||
Accrued interest and foreign exchange on converted debt | 410,821 | - | - | 55,820 |
Accrued interest on notes receivable | (83,213) | - | (81,669) | (1,544) |
Amortization | 606,100 | 2,373 | 2,134 | 1,786 |
Equity loss from investment | 102,449 | - | 102,449 | - |
Impairment of notes receivable | 1,367,945 | 77,555 | 1,290,390 | - |
Minority interest | (1,067,567) | - | - | - |
Shares issued on settlement of subsidiary debt | 267,370 | - | - | 80,833 |
Write-down of investment | 89,626 | - | 89,626 | - |
Write-down of mineral properties | 432,443 | - | - | - |
Write-off of subsidiaries, net of cash | 18,738,788 | - | - | - |
Changes in non-cash items: | ||||
Accounts receivable | (204,695) | (18,910) | 2,144 | (177) |
Goods and services tax recoverable | (3,967) | (3,967) | - | - |
Inventory | (299,208) | - | - | - |
Prepaid expenses | (3,054) | (3,054) | - | - |
Accounts payable | 2,722,785 | (26,954) | 208,101 | 201,582 |
Deposit received | 36,522 | 36,522 | - | - |
(5,651,831) | (256,148) | (209,517) | (100,363) | |
Financing activities | ||||
Advances from related parties | 1,261,516 | 274,463 | 345,728 | 122,502 |
Net proceeds on issuance of convertible debentures | 4,949,465 | - | - | - |
Net proceeds on issuance of capital stock | 17,411,105 | - | 411,348 | 722,667 |
23,622,086 | 274,463 | 757,076 | 845,169 | |
Investing activities | ||||
Notes receivable advances | (1,284,732) | (77,555) | (839,519) | (367,658) |
Purchase of subsidiaries, net of cash | (1,355,771) | - | - | - |
Purchase (disposal) of capital assets | (12,367,763) | - | (5,727) | - |
Expenditures on mineral properties | (2,054,164) | - | - | - |
Due from related parties | (465,614) | (20,186) | - | - |
Deposit | (440,340) | - | - | - |
(17,968,384) | (97,741) | (845,246) | (367,658) | |
Increase (decrease) in cash | 1,871 | (79,426) | (297,687) | 377,148 |
Cash, beginning of period | - | 81,297 | 378,984 | 1,836 |
Cash, end of period | $ 1,871 | $ 1,871 | $ 81,297 | $ 378,984 |
PAGE 8
Globetech Ventures Corp.
(A development stage company)
Consolidated Schedules of Operating Expenses
(Expressed in Canadian dollars)
Period from
December 1991
to September 30,
For the year ended September 30,
2002
2002
2001
2000
Expenses | ||||
Accounting and legal | $ 913,764 | $ 20,488 | $ 56,840 | $ 56,625 |
Amortization | 606,100 | 2,373 | 2,134 | 1,786 |
Consulting fees | 559,085 | 38,151 | 73,644 | 46,391 |
Directors fees | 97,149 | - | - | - |
Interest and bank charges | 512,299 | 35,921 | 32,813 | 68,213 |
Interest on long-term debt | 164,704 | - | - | - |
Management fees | 325,000 | 30,000 | 30,000 | 30,000 |
Office and miscellaneous | 766,664 | 25,229 | 30,769 | 19,579 |
Public relations consulting | 595,530 | 57,918 | 154,780 | 9,802 |
Regulatory and transfer agent fees | 137,409 | 5,199 | 6,466 | 9,222 |
Rent | 159,763 | 23,862 | 14,735 | 11,415 |
Repairs and maintenance | 497,118 | - | - | - |
Salaries and wages | 1,464,388 | 17,373 | 15,464 | 10,622 |
Telephone | 300,005 | 6,524 | 11,375 | 8,939 |
Trade shows, advertising and conferences | 216,691 | 3,874 | 36,204 | 4,565 |
Travel and promotion | 1,275,904 | 12,952 | 100,893 | 102,506 |
$ 8,600,017 | $ 279,864 | $ 566,117 | $ 379,665 |
PAGE 9
Globetech Ventures Corp.
(A development stage company)
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars)
September 30, 2002
1.
Nature of Operations
The Company is incorporated under the laws of British Columbia, Canada, and its principal business activities included the acquiring and developing of mineral properties and the processing of related mineral resources. During the year ended September 30, 1998, the Company determined that it was not feasible to continue its mineral property operations. The Company is currently pursuing and evaluating potential business ventures in the hi-tech field.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. Continued operations of the Company are dependent on the Company’s ability to receive continued financial support, complete equity financing, or generate profitable operations in the future.
2.
Significant Accounting Policies
The following is a summary of the significant accounting policies used by management in the preparation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles.
a)
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sacolco (Pty) Ltd. (“Sacolco”), Glowing Green Minerals Ltd. (“Glowing”), and its 60% owned subsidiary Qasim Mining Enterprises Ltd. (“QMEL”). These consolidated financial statements also include the accounts of the wholly owned subsidiaries of Sacolco, Impro Metals (Pty) Ltd. and Sachemco (Pty) Ltd. All significant inter-company balances and transactions have been eliminated.
During the year ended September 30, 1998, the Company determined that it was not feasible to continue the operations of Sacolco, Glowing and QMEL. Consequently, all net assets and related costs were written-off to operations (Note 9).
b)
Notes receivable
Notes receivable are stated at the principal amount outstanding or at the Company’s acquisition cost plus accrued interest.
Interest income is recorded on an accrual basis except on notes receivable classified as impaired. Notes receivable are classified as impaired when there is no longer reasonable assurance as to the ultimate collectability of contractual principal or interest or when the interest or principal is 90 days past due, unless the note receivable is both well secured and in the process of collection. Notes receivable that are determined to be impaired are valued at the lower of estimated realizable amount based on the present value of expected future cash flows discounted at the interest rate inherent in the original note receivable or, at the fair value of the security underlying the note receivable less disposition costs.
When a note receivable is classified as impaired, recognition of interest in accordance with the contractual terms of the note receivable ceases. Income on impaired notes receivable is reported as the change in the net present value of future cash flows. Notes receivable are restored to an accrual basis when principal and interest payments are current and there is no longer any reasonable doubt as to ultimate collectability.
c)
Financial instruments
The fair value of cash, accounts receivable, accounts payable and accrued liabilities and amounts due to and from related parties approximate their carrying value due to the relatively short periods to maturity of these financial instruments.
d)
Investments
The Company accounts for its investments in affiliated companies over which it has significant influence on the equity basis of accounting, whereby the investments are initially recorded at cost, adjusted to recognize the Company’s share of earnings or losses of the investee company and reduced by dividends received. Declines in market value below costs are recognized when such declines are considered to be other than temporary.
e)
Capital assets
Capital assets are carried at cost less accumulated amortization. Amortization is being provided for annually using the declining balance method at the following annual rates:
Office equipment | 20% |
Computer equipment | 30% |
f)
Income (loss) per share
Income (loss) per share amounts have been calculated based on the weighted average number of shares outstanding during the year. The weighted average number of shares outstanding during the year was 9,489,939.
The Company uses the treasury stock method of calculating fully diluted per share amounts whereby any proceeds from the exercise of stock options or other dilutive instruments are assumed to be used to purchase common shares at the average market price during the period. The assumed conversion of outstanding common share options has an anti-dilutive effect in the presented years.
g)
Foreign currency translation
The monetary assets and liabilities of the Company that are denominated in foreign currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the exchange rate prevailing at the transaction date. Exchange gains and losses arising on translation are included in the consolidation statements of operations.
All of the Company’s foreign subsidiaries are integrated with the Company and translated using the temporal method. Under this method, monetary assets and liabilities are translated at the rate of exchange at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Income and expenses are translated at rates which approximate those in effect on transaction dates. Gains and losses arising from restatement of foreign currency monetary assets and liabilities at each period end are included in earnings.
h)
Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those reported.
i)
Income tax
Income taxes are accounted for using the future income tax method. Under this method income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are likely to be realized. Future income taxes assets and liabilities are measured using tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled.
Tax benefits arising from past losses and unused resource pools have not been recorded due to uncertainty regarding their utilization.
j)
Stock based compensation
The Company has approved purchase options which are detailed in note 6. No compensation expense is recognized for this plan when shares or share purchase options are issued. Any consideration paid on the exercise of share purchase options or purchase of shares is credited to share capital. If stock or stock options are repurchased, the excess of the consideration paid over the carrying amount of the stock or stock option cancelled is charged to deficit.
3.
Notes Receivable
September 30, | 2002 | 2001 |
US Dollar advances to Translationwave.com (Note 4) | ||
(2002 – US$558,800; 2001 – US$531,000) | $ 882,040 | $ 838,184 |
Canadian Dollar advances to Translationwave.com | 402,692 | 368,993 |
1,284,732 | 1,207,177 | |
Accrued interest | 83,213 | 83,213 |
1,367,945 | 1,290,390 | |
Less: Allowance for impaired loans | (1,367,945) | (1,290,390) |
$ - | $ - |
Advances to Translationwave.com, a Nevada based company controlled by a relative of a director of the Company, are unsecured, bear interest at the Royal Bank of Canada prime rate plus 3% per annum and are due on demand.
The Company has determined that the notes receivable are impaired. Consequently, an allowance for impairment has been recorded against the entire balance of notes receivable.
4.
Investment in Translationwave.com
September 30, | 2002 | 2001 |
Acquisition of 20% of the outstanding common shares of Translationwave.com (US$125,000) | $ - | $ 192,075 |
Equity loss from investment | - | (102,449) |
- | 89,626 | |
Write-down for decline in value | - | (89,626) |
$ - | $ - |
On April 19, 2001, the Company acquired 20% of the issued and outstanding common shares of Translationwave.com, a company controlled by a relative of a director of the Company. As consideration, the Company issued 500,000 common shares at an agreed price of US$0.25 per share and advanced US$500,000 to Translationwave.com (Note 3). In addition, the Company had the exclusive option to purchase all of the remaining shares of Translationwave.com until April 19, 2002 at a price to be determined by obtaining a valuation of Translationwave.com. The investment was accounted for by the equity method.
At September 30, 2001, the Company determined that the market value of the investment declined below the cost of the investment. This decline was determined to be other than temporary. Consequently, the remaining book value of the investment was written-down to $Nil.
Subsequent to September 30, 2002 the Company acquired a 100% interest in Translationwave.com. At the effective date of acquisition the cost to acquire the investment and the net assets acquired was $Nil.
5.
Due To and From Related Parties
Amounts due to the President of the Company, to and from a corporation controlled by the President of the Company and to a relative of the President of the Company are unsecured, accrue no interest and have no fixed terms of repayment.
The amount due from related parties was collected subsequent to the year end.
6.
Capital Assets
2002 | 2001 | |||
Cost | Accumulated Amortization | Net book value | Net book value | |
Office equipment | $ 5,222 | $ 4,592 | $ 630 | $ 788 |
Computer equipment | 26,314 | 21,145 | 5,169 | 7,384 |
$ 31,536 | $ 25,737 | $ 5,799 | $ 8,172 |
7.
Loans from Related Parties
September 30, | 2002 | 2001 |
Companies with common directors | ||
Loan payable bearing interest at prime plus 3% per annum | $ 195,434 | $ 187,398 |
Loan payable bearing interest at 10% per annum | 17,764 | 11,619 |
President | ||
Loan payable bearing interest at 10% per annum | 278,216 | 157,411 |
Relatives of the President | ||
Loan payable bearing interest at 10% per annum | 45,300 | 36,515 |
Loan payable bearing interest at 10% per annum | 13,120 | - |
$ 549,834 | $ 392,943 |
8.
Related Party Transactions
During the year ended September 30, 2002, the Company entered into the following transactions with related parties:
a)
Paid or accrued management fees of $30,000 (2001 - $30,000) to a company controlled by a director.
b)
Paid or accrued consulting fees of $38,151 (2001 - $73,644) to a relative of a director.
c)
Accrued interest of $35,293 (2001 - $28,795) on loans payable to a director and companies with common directors.
d)
Issued Nil (2001 - 606,212) common shares to a director as settlement of debt and accounts payable in the amount of $Nil (2001 - $313,063).
e)
Issued Nil (2001 - 308,458) common shares to a relative of a director as settlement of debt in the amount of $Nil (2001 - $189,721).
f)
Paid finder’s fees of $Nil (2001 - $45,492) to a relative of a director relating to the private placement of shares (note 10).
All of the above transactions have been in the normal course of operations and, in management’s opinion, undertaken with the same terms and conditions as transactions with unrelated parties.
9.
Recoveries of Subsidiaries
September 30, | 2002 | 2001 | 2000 |
Additional abandonment costs | $ - | $ - | $ (2,943) |
Shares issued on settlement of subsidiary debt | - | - | (80,833) |
Recoveries from subsidiary assets previously written off | 37,751 | 118,748 | 48,088 |
$ 37,751 | $ 118,748 | $ (35,688) |
By a Lease Agreement dated August 1, 2002, commencing August 15, 2002, the Company granted Broken Hill Minerals Limited (“BHM”), of Zambia, a lease over plant and equipment and premises located in Kabwe, Zambia for a period of 24 months for a rental of US$12,000 per month. In addition, the Company granted BHM an option to purchase the plant on or before August 1, 2004 for consideration of US$6,500,000.
The Company has received US$24,000 (CDN$36,522) as a security deposit. The deposit, plus interest is repayable at the end of the lease.
The plant, premises, and equipment were written off by the Company during the year ended September 30, 1998.
10.
Share Capital
a)
Private Placement
During the year ended September 30, 2001, the Company completed a private placement of 2,000,000 units at a price of US$0.15 per unit for total proceeds of US$300,000 (CDN$456,840). Each unit consisted of one common share and one non-transferrable share purchase warrant. Each non-transferrable share purchase warrant entitles the holder to purchase one additional common share of the Company at US$0.30 per share for a period of two years. The Company also paid finder’s fees of US$30,000 (CDN$45,492) to a relative of a director relating to this private placement.
As at September 30, 2002 there were 25,000 (2001 - 25,000) shares held in escrow. Release of these shares is subject to approval of regulatory authorities.
b)
Stock options
The Company is authorized to grant options to directors, employees and consultants. Stock option transactions and the number of stock options outstanding are summarized as follows:
Number of Options | Weighted average exercise price | ||
Outstanding and exercisable at October 1, 1999 | 77,332 | US$ | 9.75 |
Options granted | 557,500 | 1.74 | |
Options cancelled/ expired | (77,332) | 9.75 | |
Options exercised | (24,100) | 1.60 | |
Outstanding and exercisable at September 30, 2000 | 533,400 | US$ | 1.75 |
Options granted | - | - | |
Options cancelled/ expired | (23,400) | 1.60 | |
Options exercised | - | - | |
Outstanding and exercisable at September 30, 2001 | 510,000 | US$ | 1.75 |
Options granted | - | - | |
Options cancelled/ expired | (315,000) | 1.60 | |
Options exercised | - | - | |
Outstanding and exercisable at September 30, 2002 | 195,000 | US$ | 2.00 |
At September 30, 2002, the Company had outstanding stock options to purchase 195,000 common shares at an exercise price of US$2.00 on or before August 22, 2003.
c)
Warrants
At September 30, 2002, the Company had outstanding common share purchase warrants exercisable to acquire 2,000,000 common shares at an exercise price of US$0.30 on or before June 26, 2003.
11.
Income Taxes
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
September 30, | 2002 | 2001 | 2000 |
Loss before income taxes | $ (319,713) | $(1,822,692) | $ (438,663) |
Income tax recovery at statutory rates | $ 142,656 | $ 812,921 | $ 200,118 |
Non-deductible items for tax purposes | (35,664) | (662,131) | (25,943) |
Unrecognized benefit of non-capital loss carryforwards | (106,992) | (150,790) | (174,175) |
$ - | $ - | $ - |
The significant components of the Company’s future income tax assets are as follows:
September 30, | 2002 | 2001 |
Future income tax assets | ||
Capital assets | $ 11,360 | $ 9,604 |
Mineral properties | 624,748 | 582,464 |
Notes receivable | 300,930 | 268,401 |
Investment in Translationwave.com | 42,852 | 39,952 |
Net capital losses available | 4,871,647 | 4,541,921 |
Non-capital losses available for future periods | 1,550,261 | 1,468,194 |
7,401,798 | 6,910,536 | |
Valuation allowance | (7,401,798) | (6,910,536) |
$ - | $ - |
The Company has incurred non-capital losses of approximately $3,474,000 which may be applied to reduce taxable income in future years. These non-capital losses will expire through 2008.
In addition, the Company has net capital losses of approximately $10,918,000 which may be applied against taxable capital gains in the future. These net capital losses may be carried forward indefinitely.
Also, the Company has available certain exploration and development expenditures to reduce taxable income of future years.
Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements as they are not considered likely to be realized.
12.
Supplemental Cash Flow Information
September 30, | 2002 | 2001 | 2000 |
Financing activities | |||
Share capital issued for: | |||
Debts | $ - | $ 502,784 | $ 489,660 |
Note payable | - | - | 1,078,550 |
Investment | - | 192,075 | - |
Share subscription advances | - | 369,875 | - |
Share subscription advances | - | (369,875) | - |
$ - | $ 694,859 | $ 1,568,210 | |
Investing activity | |||
Investment | $ - | $ (192,075) | $ - |
13.
Segmented Information
The Company’s only reportable segment during the years ended September 30, 2002, 2001, and 2000 has been the pursuing and evaluation of potential ventures in the hi-tech field. All operations took place in Canada.
14.
Contingencies
Potential legal claims may exist between the Company and certain previous holders of the Company’s convertible debentures related to certain obligations under the conversion terms of the convertible debentures. In the opinion of management, these claims are without merit and consequently no provision has been made for these claims in these consolidated financial statements.
15.
Comparative Figures
The comparative figures for the year ended September 30, 2001 and 2000 were audited by another auditor and have been reclassified where applicable to conform to the current presentation.
16.
Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”)
These financial statements are prepared in accordance with GAAP in Canada, which differs in some respects from GAAP in the United States. The material differences between Canadian and United States GAAP, in respect of these financial statements, are as follows:
a)
Stock based compensation
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation”, which became effective for fiscal years beginning after December 15, 1995, requires a fair market value based method of accounting for stock based compensation plans. The Company has adopted SFAS No. 123 in accounting for its stock option plan. Canadian generally accepted accounting principles do not require the reporting of any stock based expense in the Company’s financial statements.
The weighted average fair value of options granted during fiscal 2002 was $Nil (2001 - $Nil; 2000 – US$1.74). In calculating this amount, the Company has utilized the Black-Scholes option pricing model to estimate the fair value of the options granted in the year using the following key assumptions:
September 30, | 2002 | 2001 | 2000 |
Risk free interest rate | - | - | 6.07% |
Expected life | - | - | 2.35 years |
Expected volatility | - | - | 241.46% |
Expected dividends | - | - | - |
b)
Loss per share
Under both Canadian and United States generally accepted accounting principles basic loss per share is calculated using the weighted average number of common shares outstanding during the year.
Under United States generally accepted accounting principles, the weighted average number of common shares outstanding excludes any shares that remain in escrow, but may be earned out based on the Company incurring a certain amount of exploration and development expenditures. The weighted average number of shares outstanding under United States generally accepted accounting principles for the years ended September 30, 2002, September 30, 2001, and 2000 were 9,464,939, 6,841,266, and 4,284,771, respectively.
c)
Mineral property exploration and development
Under United States GAAP, all mineral exploration and development property expenditures are expensed in the year incurred in an exploration stage company until there is substantial evidence that a commercial body of ore has been located. Canadian GAAP allows resource exploration and development property expenditures to be deferred during this process.
d)
New accounting pronouncements
In June 2001, the Financial Accounting Standards Board (“FASB”) approved the issuance of SFAS No. 141, “Business Combination”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 states that all business combinations should be accounted for using the purchase method of accounting making the use of the pooling-of-interest method prohibited. SFAS No. 141 is effective for business combinations completed after June 30, 2001. SFAS No. 142 addresses the accounting for all purchased intangible assets, but not the accounting for internally developed intangible assets. Goodwill will no longer be amortized and will be reviewed for impairment in accordance with SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early ad option is permitted for entities with fiscal years beginning after March 15, 2001.
In July 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”, that records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets. The initial recognition of the liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. SFAS No. 143 is required to be adopted effective January 1, 2003.
In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets”, that supersedes SFAS No. 121 “Accounting for the Impairment of Disposal of Long-Lived Assets and for Long Lived Assets to Be Disposed Of.” SFAS No. 144 is required to be adopted effective January 1, 2002.
In June 2002, FASB issued SFAS No. 146 “Accounting for costs Associated with Exit or Disposal Activities” (“SFAS 146”), which is supercedes EITF Issue No. 94-3 “Liability Recognition for Cetain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring)”. SFAS is required to be adopted for disposal plans initiated after December 31, 2002.
The adoption of these new pronouncements is not expected to have a material effect on the Company’s consolidated financial position or results of operations.
The effect on the Company’s consolidated balance sheet of the above differences between Canadian and United States generally accepted accounting principles is summarized below:
2002 | 2001 | |
Total assets under United States GAAP | $ 54,767 | $ 90,449 |
Total liabilities under United States GAAP | $ 946,060 | $ 662,029 |
Capital stock as reported | 27,873,683 | 27,873,683 |
Cumulative compensation expense on granting of stock options | 3,388,662 | 3,388,662 |
Cumulative compensation expense on release of escrow shares | 3,435,000 | 3,435,000 |
Capital stock under United States GAAP | 34,697,345 | 34,697,345 |
Deficit as reported | (28,764,976) | (28,445,263) |
Cumulative compensation expense on granting of stock options | (3,388,662) | (3,388,662) |
Cumulative compensation expense on release of escrow shares | (3,435,000) | (3,435,000) |
Deficit under United States GAAP | (35,588,638) | (35,268,925) |
Shareholders’ deficiency under United States GAAP | (891,293) | (571,580) |
Shareholders’ deficiency and liabilities under United States GAAP | $ 54,767 | $ 90,449 |
The effect on the Company’s consolidated balance sheet of the above differences between Canadian and United States generally accepted accounting principles is summarized below:
Period from December 1991 to September 30, 2002 | September 30, 2002 | September 30, 2001 | September 30, 2000 | |
Loss for the period as reported | $ (28,764,976) | $ (319,713) | $ (1,822,692) | $ (438,663) |
Less | ||||
Compensation expense on granting of stock options | (3,388,662) | - | - | (2,370,883) |
Compensation expense on release of escrow shares | (3,435,000) | - | - | - |
Loss for the period under United States GAAP | $ (35,588,638) | $ (319,713) | $ (1,822,692) | $ (2,809,546) |