EXHIBIT 99.3
Banro Corporation
Consolidated Financial Statements
For the years ended December 31, 2003 and 2002
(Expressed in U.S. dollars)
Banro Corporation
Consolidated Financial Statements
For the years ended December 31, 2003 and 2002
(Expressed in U.S. dollars)
Contents
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Auditors' Report 2
Consolidated Financial Statements
Balance Sheets 3
Statements of Operations and Deficit 4
Statements of Cash Flows 5
Summary of Significant Accounting Policies 6-8
Notes to Financial Statements 9-21
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Auditors' Report
To the Shareholders of
Banro Corporation
We have audited the consolidated balance sheets of Banro Corporation as at
December 31, 2003 and 2002 and the consolidated statements of operations and
deficit and cash flows for the years 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 audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. 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 December 31, 2003
and 2002 and the results of its operations and cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
- --------------------------------------------------------------------------------
(Signed) BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
February 26, 2004 (Except for Note 13, which is as at March 30, 2004)
2
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Banro Corporation
Consolidated Balance Sheets
(Expressed in U.S. dollars)
December 31 2003 2002
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 938,930 $ 1,228,005
Accounts receivable and prepaid expenses 12,495 40,571
Amounts due from related parties (Note 7) 50,596 317,108
------------------------------
1,002,021 1,585,684
Note receivable (Note 2) 216,320 208,000
Investments (Note 3) 1,014,939 930,673
Property, plant and equipment (Note 4) 142,456 111,619
Deferred exploration expenditures (Note 5) 322,690 -
------------------------------
$ 2,698,426 $ 2,835,976
================================================================================
Liabilities and Shareholders' Equity
Current
Accounts payable $ 40,953 $ 80,902
Amount due to related party - 4,912
------------------------------
40,953 85,814
------------------------------
Shareholders' equity
Share capital (Note 6) 39,469,888 39,173,793
Contributed surplus (Note 6) 502,014 29,816
Deficit (37,314,429) (36,453,447)
------------------------------
2,657,473 2,750,162
------------------------------
$ 2,698,426 $ 2,835,976
================================================================================
On behalf of the Board
(Signed) Arnold T. Kondrat Director
- -----------------------------
(Signed) Richard J. Lachcik Director
- -----------------------------
3
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Banro Corporation
Consolidated Statements of Operations and Deficit
(Expressed in U.S. dollars)
For the years ended December 31 2003 2002
- --------------------------------------------------------------------------------
Expenses
Professional fees $ 155,293 $ 234,588
Consulting fees 258,412 356,458
Office and sundry 121,278 127,515
Salary 272,604 185,175
Employee stock based compensation 378,724 -
Travel and promotion 175,894 262,340
Shareholder relations 39,761 83,115
Management fees 34,256 10,286
Interest and bank charges 3,770 2,532
Accounting and secretarial fees 919 818
Amortization 44,031 49,857
Foreign exchange loss (gain) (356,141) 55,028
------------------------------
(1,128,801) (1,367,712)
Interest income 28,543 29,461
------------------------------
Loss from operations (1,100,258) (1,338,251)
Share of equity loss of BRC Development (116,731) (56,821)
Loss on dilution of interest in BRC Development (2,899) -
Loss on disposition of capital asset - (10,646)
Loss on deconsolidation of Sakima (Note 1) (2,551) -
Recovery of legal fees from lawsuit (Note 10) 361,457 -
------------------------------
Net loss for the year (860,982) (1,405,718)
Deficit, beginning of year (36,453,447) (35,047,729)
------------------------------
Deficit, end of year $(37,314,429) $(36,453,447)
================================================================================
Loss per share (Note 6(e)) $ (0.09) $ (0.15)
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4
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Banro Corporation
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
For the years ended December 31 2003 2002
- --------------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net loss for the period $ (860,982) $ (1,405,718)
Adjustments to reconcile loss to net cash
provided by operating activities
Unrealized foreign exchange gain (110,854) (8,791)
Share of equity loss 116,731 56,821
Loss on dilution of interest 2,899 -
Value of options issued (Note 6(d)) 472,198 33,705
Amortization 44,031 49,857
Loss on disposition of capital assets - 10,646
Accrued interest on notes receivable (8,320) (8,000)
Changes in non-cash working
capital balances
Accounts receivable and prepaid
expenses 28,980 276,262
Accounts payable (42,912) (301,248)
------------------------------
(358,229) (1,296,466)
------------------------------
Investing activities
Acquisition of property, plant and equipment (79,467) (22,232)
Disposition of property, plant and equipment - 21,960
Proceeds on amount due from BRC Development 189,574 (547,764)
Deferred exploration expenditures (318,091) -
------------------------------
(207,984) (548,036)
------------------------------
Financing activities
Due to/from related parties (84,004) (120,794)
Common shares and warrants issued for cash 296,095 3,173,191
------------------------------
212,091 3,052,397
------------------------------
Foreign exchange gain on cash held in foreign
currency 65,047 5,573
------------------------------
Net increase (decrease) in cash during the year (289,075) 1,213,468
Cash, beginning of year 1,228,005 14,537
------------------------------
Cash, end of year $ 938,930 $ 1,228,005
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5
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Banro Corporation
Summary of Significant Accounting Policies
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
Nature of Banro Corporation's (the "Company") business focus is in the
Business exploration of mineral properties in the Democratic Republic
of the Congo (the "Congo").
Principles of The consolidated financial statements include the accounts
Consolidation of the Company, its wholly-owned subsidiary in the United
States, Banro American Resources Inc., and its wholly-owned
subsidiaries, Banro Congo Mining SARL, Kamituga Mining SARL,
Lugushwa Mining SARL, Namoya Mining SARL and Twangiza Mining
SARL in the Congo.
Up to September 30, 2003, the consolidated financial
statements also included the accounts of its 93% owned
subsidiary, Societe Aurifere du Kivu et du Maniema S.A.R.L.
("Sakima") in the Congo. The Congolese government held the
remaining 7% ownership interest of Sakima (Note 1).
Investments Investments in companies subject to significant influence
are accounted for using the equity method. Other long-term
investments are accounted for using the cost method.
Property, Plant Property, plant and equipment is recorded at cost.
and Equipment Amortization is recorded as follows:
Office furniture and
fixtures - 20% declining balance basis
Office equipment - Straight line over four years
Vehicles - Straight line over four years
Leasehold improvements - Straight line over five years
6
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Banro Corporation
Summary of Significant Accounting Policies
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
Foreign Currency These consolidated financial statements are expressed in the
Translation functional currency of the Company, United States dollars.
For integrated operations, monetary assets and liabilities
are translated at the spot rates of exchange in effect at
the end of the year; non-monetary items are translated at
historical exchange rates in effect on the dates of the
transactions. Revenues and expense items, except
amortization, are translated at average rates of exchange in
effect during the year. Realized exchange gains and losses
and currency translation adjustments are included in the
consolidated statements of operations and deficit.
Deferred Exploration costs relating to mineral properties and rights
Exploration are deferred and carried as an asset until the results of
Expenditures the projects are known. As the Company currently has no
operational income, any incidental revenues earned in
connection with these properties or related exploration
activities are applied as a reduction to capitalized
exploration costs. If a property is determined to be
non-commercial, non-productive or its value is impaired,
those costs in excess of estimated recoveries are charged to
operations.
Stock Options The Company has a stock option plan, which is described in
Note 6(d). During the year the Company adopted, on a
prospective basis, the fair value method of accounting for
stock options granted to directors, officers and employees
whereby the weighted average fair value of options granted
is recorded as a compensation expense in the financial
statements. Compensation expense on stock options granted to
non-employees is recorded as an expense in the period the
options are vested using the fair value method. Any
consideration paid by directors, officers, employees and
consultants on exercise of stock options or purchases of
shares is credited to share capital.
7
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
Financial Unless otherwise noted, it is management's opinion that the
Instruments Company is not exposed to significant interest, currency or
credit risks arising from its financial instruments. The
fair values of its financial instruments approximate their
carrying values, unless otherwise noted.
Income Taxes The asset and liability method is used to determine income
taxes. Pursuant to this method, future tax assets and
liabilities are recognized for future tax consequences
attributable to differences between financial statement
carrying values and tax bases of assets and liabilities.
Future tax assets and liabilities are measured using enacted
tax rates expected to be recovered or settled. The effect on
future tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the
enactment date. Net future income tax losses are offset by
valuation allowances to the extent that they are not more
likely not to be realized.
Use of Estimates The preparation of consolidated 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
liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ
from those estimates.
8
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
1. Interest in Congolese Subsidiaries
- -- ----------------------------------
On July 31, 1998 the Company discovered that the government of the Congo,
without prior warning or consultation, had issued Presidential decrees
purporting to, among other things, (a) dissolve Sakima and (b) terminate
the Company's mining convention relating to the Company's mineral
properties. The Company disputed the validity of the Congolese government
actions and vigorously pursued resolution of the disputes through legal
procedures.
On April 18, 2002 the government of the Congo formally signed a settlement
agreement with the Company. The agreement calls for, among other things,
the Company to hold 100% interest in the Twangiza, Kamituga, Lugushwa and
Namoya gold deposits under a revived 30-year mining convention. The
government of the Congo will retain 100% of the tin assets. Subsequent to
the signing of the settlement agreement the Company filed with the Federal
Court in Washington, DC, a notice of dismissal with respect to its legal
action against the Congolese government.
On May 30, 2003 the government of the Congo issued Presidential decrees to
rescind the July 31, 1998 decrees and to amend the Company's mining
convention in accordance with the settlement agreement signed on April 18,
2002.
On September 30, 2003 the Company wound up the operations of Sakima and
will transfer all its shares in Sakima to the government of Congo in
accordance with the April 18, 2002 settlement agreement after Sakima's
title in the gold deposits is transferred to the Company's new wholly-owned
subsidiaries.
The Company operates primarily in one operating segment and its assets
located in the Congo, including its interests in gold and other mining
properties, may be subject to sovereign risks, including political and
economic instability, government regulations relating to mining, military
repression, civil disorder, currency fluctuations and inflation, all or any
of which may impede the Company's activities in this country or may result
in the impairment or loss of part or all of the Company's interest in the
properties.
- --------------------------------------------------------------------------------
2. Note Receivable
- -- ---------------
The note, receivable from a shareholder of the Company, is secured by a
pledge of marketable securities with a market value at December 31, 2003 of
$76,425 and bears interest at 4% per annum. The principal and interest
accrued thereon is due on November 30, 2004.
9
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
3. Investments
- -- -----------
(a) Investment in Nevada Bob's International Inc.
Effective December 31, 2003 the Company entered into an agreement with
Nevada Bob's International Inc. (NBI), a franchisor of golf equipment
and apparel, in order to purchase 941,255 common shares of NBI at a
price of $0.40 per share or $376,502 in the aggregate, in order to
settle an outstanding debt of NBI to the Company of the equivalent
amount. The quoted market value of the shares on December 31, 2003 was
$0.34 per share or $320,027 in aggregate.
The investment represents 6.55% of outstanding common shares of NBI
and is accounted for under the cost method, as management does not
have the ability to exercise significant influence over NBI. This
investment will continue to be carried at cost and will be written
down only when there has been a loss in value which is other than
temporary.
(b) Investment in BRC Development Corporation
The Company owns 3,500,000 common shares, representing a 40.30% (2002
- 43.75%) equity interest, in BRC Development Corporation (BRC) with a
quoted market value of approximately $3,509,448 at December 31, 2003
(2002 - $333,000). On November 29, 2002 the Company acquired, by way
of private placement 1,500,000 common shares of BRC at a price of Cdn.
$0.20 per share.
BRC is a corporation formed under the laws of the Province of Ontario
whose principal business is the acquisition and exploration of mineral
properties.
The Company's investment in BRC is summarized as follows:
2003 2002
Equity investment, beginning of year $ 502,968 $ 367,024
Acquisitions - 192,765
------------------------------
502,968 559,789
Share of equity loss (116,731) (56,821)
Loss on dilution of interest (2,899) -
------------------------------
Equity investment, end of year 383,338 502,968
Amount due from BRC 255,099 427,705
------------------------------
$ 638,437 $ 930,673
==============================
The amount due from BRC is unsecured, non-interest bearing and is due
on demand. The fair value of this loan could not be reasonably
determined as there is no comparable market data.
10
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
3. Investments (continued)
- -- -----------------------
(b) Investment in BRC Development Corporation (continued)
BRC's summarized audited balance sheet and income statement for the
years ended December 31, 2003 and 2002, converted to US $ at the year
end rate of exchange, is as follows:
2003 2002
-------------------------------
Assets
Current assets $ 59,689 $ 100,360
Investment 1,016,542 1,287,614
Mineral properties 358,309 240,455
Deferred pre-operating costs 17,340 -
Property, plant and equipment 57,879 76,109
-------------------------------
1,509,759 1,704,538
-------------------------------
Liabilities 378,921 577,582
-------------------------------
Net Equity $ 1,130,838 $ 1,126,956
-------------------------------
Income Statement
Revenue $ 2 $ 2
Expenses (340,649) (150,667)
Write-off of mineral claims (3,169) (25,263)
-------------------------------
Net Loss $ (343,816) $ (175,920)
===============================
- --------------------------------------------------------------------------------
4. Property, Plant and Equipment
- -- -----------------------------
Accumulated Net Book
December 31, 2003 Cost Amortization Value
Office furniture and fixtures $ 18,254 12,162 6,092
Office equipment 114,390 59,235 55,155
Vehicle 47,145 2,947 44,198
Leasehold improvement 105,746 68,735 37,011
-----------------------------------------
$ 285,535 $ 143,079 $ 142,456
=========================================
11
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
4. Property, Plant and Equipment (continued)
- -- -----------------------------------------
Accumulated Net Book
December 31, 2002 Cost Amortization Value
Office furniture and fixtures $ 18,254 10,775 7,479
Office equipment 103,019 57,039 45,980
Leasehold improvement 105,746 47,586 58,160
-----------------------------------------
$ 227,019 $ 115,400 $ 111,619
=========================================
- --------------------------------------------------------------------------------
5. Deferred Exploration Expenditures
- -- ---------------------------------
Deferred Exploration
Cumulative
from inception
2003 in April 1994
---------------------------------
Exploration cost $ 318,091 $ 16,476,171
Amortization 4,599 35,450
---------------------------------
Net expenditure 322,690 16,511,621
Effect of exchange rate change - 2,511
---------------------------------
322,690 16,514,132
Write-off - (16,191,442)
---------------------------------
Balance, end of period $ 322,690 $ 322,690
=================================
12
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
5. Deferred Exploration Expenditures (continued)
- -- ---------------------------------------------
Mineral rights
Cumulative
from inception
2003 in April 1994
---------------------------------
Mineral rights $ - $ 9,681,194
Write-off - (9,681,194)
---------------------------------
Balance, end of period $ - $ -
=================================
Because of the events referred to in Note 1, the mineral rights and
deferred exploration expenditures were written off in 2000. For the period
ended December 31, 2002 the Company did not capitalize any costs related to
the Congo mineral properties.
- --------------------------------------------------------------------------------
6. Share Capital
- -- -------------
(a) Authorized Share Capital
Unlimited number of common shares
Unlimited number of preference shares, issuable in series
(b) Issued Share Capital - Common Shares
2003 2002
--------------------------------------------------------------------
Number of Shares Amount Number of Amount
Shares
Balance -
Beginning of period 9,886,594 $ 39,173,793 7,472,844 $ 35,996,713
Exercise of stock options 41,250 23,017 38,750 22,710
Exercise of warrants 500,000 273,078 425,000 125,502
Issued during the period - - 1,950,000 3,028,868
--------------------------------------------------------------------
Balance - End of period 10,427,844 $ 39,469,888 9,886,594 $ 39,173,793
====================================================================
(i) On January 24, 2002, the Company issued by way of a non-brokered
private placement 350,000 units of the Company at a price of Cdn.
$0.70 per unit for cash proceeds of Cdn. $245,000 (US $152,886).
Each unit consists of one common share of the Company and one
non-transferable warrant. Each such warrant entitles the holder
thereof to purchase one common share of the Company at a price of
Cdn. $0.80 for a period of two years.
13
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
6. Share Capital - (continued)
- -- ---------------------------
(ii) On March 25, 2002, the Company completed a non-brokered arm's
length private placement of 500,000 common shares of the Company
at a price of Cdn. $1.30 per share for cash proceeds of Cdn.
$650,000 (US $408,703).
(ii) On April 22, 2002, the Company completed a non-brokered arm's
length private placement of 100,000 units of the Company at a
price of Cdn. $1.50 per unit for cash proceeds of Cdn. $150,000
(US $94,067). Each unit consists of one common share of the
Company and one non-transferable warrant. Each such warrant
entitles the holder thereof to purchase one common share of the
Company at a price of Cdn. $1.80 for a period of two years.
(iii)On May 21, 2002, the Company completed a non-brokered arm's
length private placement of 1,000,000 common shares of the
Company at a price of Cdn. $3.65 per share for cash proceeds of
Cdn. $3,650,000 (US $2,373,212).
(c) Warrants
The following table summarizes information about warrants outstanding
and exercisable at December 31, 2003.
Exercise
Number price
Date of Grant Outstanding Cdn$ Expiry Date
01/24/02 250,000 $ 0.80 01/24/04
04/22/02 100,000 $ 1.80 04/22/04
------------------------
350,000
========================
(d) Stock Options
In 2001, the Company established an incentive Stock Option Plan under
which non-transferable options to purchase common shares of the
Company may be granted to directors, officers, employees or service
providers of the Company to a maximum of 1,900,000 common shares.
Under this Stock Option Plan, options vest 25% immediately at grant
date and 25% on each of the three consecutive six-month periods
subsequent to the issuance. As at December 31, 2003 the Company had
1,081,500 stock options outstanding to acquire common shares at a
weighted-average price of Cdn. $2.06 per share, expiring at various
dates between January 2004 and October 2008.
14
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
6. Share Capital - (continued)
- -- ---------------------------
(d) Stock Options - (continued)
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2003:
Options outstanding and exercisable
---------------------------------------------------------------
Options
Options Exercised,
Number granted Expired Number Options Exercise
Date outstanding during the or outstanding Exercisable price Expiry
of grant at 12/31/02 period Forfeited at 12/31/03 at 12/31/03 Cdn $ date
$
01/31/01 396,250 - 21,250 375,000 375,000 0.60 01/31/04
01/31/01 30,000 - 10,000 20,000 20,000 1.00 01/31/04
10/12/01 40,000 - - 40,000 40,000 0.60 10/12/04
01/08/02 223,000 - 40,000 183,000 183,000 0.80 01/08/07
04/03/02 25,000 - - 25,000 25,000 1.70 04/03/04
04/26/02 30,000 - 20,000 10,000 10,000 3.30 04/26/04
10/16/03 168,500 168,500 42,125 4.00 10/16/08
10/16/03 60,000 60,000 15,000 4.00 10/16/06
10/29/03 100,000 100,000 25,000 4.11 10/29/08
10/29/03 100,000 100,000 25,000 4.11 10/29/06
----------------------------------------------------------------
744,250 428,500 91,250 1,081,500 760,125
=================================================================
2002
The weighted average grant-date fair value of 178,000 stock options
granted to employees, directors and officers during 2002 was $58,822.
No compensation cost was recognized in the income statement for these
stock options. Had the fair value of these options been expensed, the
loss for the year would be $1,464,540 and the loss per share would be
$0.16.
During 2002, the Company issued a total of 110,000 stock options to
consultants and other service providers, of which 10,000 were
exercised on January 26, 2002 and 45,000 were exercisable as at
December 31, 2002. The weighted average grant-date fair value of these
vested stock options was $33,705. This amount was recognized in the
income statement as an expense and was credited accordingly to options
in the balance sheet.
15
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
6. Share Capital - (continued)
- -- ---------------------------
(d) Stock Options - (continued)
2003
As at December 31, 2003, the weighted average grant-date fair value of
158,625 vested stock options granted to employees, directors and
officers was $378,724. This amount was recognized in the income
statement as an expense and was credited accordingly to contributed
surplus in the balance sheet.
During the year ended December 31, 2003, a total of 72,500 stock
options previously issued to consultants and other service providers
vested. The weighted average grant-date fair value of these vested
stock options was $93,474. This amount was recognized in the income
statement as an expense and was credited accordingly to options in the
balance sheet. During the year a total of 50,000 options previously
granted to consultants were cancelled. Accordingly an amount of
$16,986 relating to these options was transferred to contributed
surplus.
The Black-Scholes option-pricing model was used to estimate values of
all stock options granted during the year based on the following
weighted average information:
(i) risk-free interest rate: 2.54% (2002 - 2.54%)
(ii) expected volatility: 118% (2002 - 124%)
(iii) expected life: 3.74 years (2002 - 4.38 years)
(iv) expected dividends: $Nil (2002 - $Nil)
(e) Earnings (Loss) per Share
Earnings (loss) per share was calculated on the basis of the weighted
average number of common shares outstanding for the year ended
December 31, 2003, amounting to 9,918,786 (2002 - 9,183,681) common
shares.
Fully diluted earnings (loss) per share have not been presented since
the exercise of the options and warrants would be anti-dilutive.
(f) Contributed Surplus
2003 2002
---------------------------------
Stock option compensation $ 502,014 $ 29,816
=================================
16
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
7. Related Party Transactions
- -- --------------------------
(a) Due from Related Parties
This amount represents advances of $50,596 (2002 - $101,393) due from
employees of the Company and advances due from corporations whose
directors are also directors of the Company of $nil (2002 - $215,715).
Included in accounts payable is an amount of $3,018 due to a
corporation whose director and sole shareholder is a director of the
Company.
Amounts due from related parties are unsecured, non-interest-bearing
and repayable upon demand.
(b) Other Transactions
During the year ended December 31, 2003, a corporation wholly-owned by
a director of the Company incurred office and general expenses on
behalf of the Company and two other affiliated corporations. The
Company's share of these expenses amounted to $70,733 (2002 -
$53,986).
Management fees of $34,256 (2002 - $10,286) were paid to directors of
the Company.
Legal fees of $78,047 (2002 - $98,442) were paid to a law firm of
which two partners are also directors of the Company.
These transactions are in the normal course of operations and are
measured at the exchange value.
17
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
8. Income Taxes
- -- ------------
The Company's income tax provision (recovery) for the year ended December
31, 2003 and 2002 have been calculated as follows:
2003 2002
------------------------------
Net loss for the year $ 860,982 $ 1,405,718
==============================
Combined federal and provincial income
tax rates 36.62% 38.62%
==============================
Income tax recovery at Canadian federal
and provincial statutory rates $ (315,292) $ (542,888)
Losses of subsidiaries not taken for tax 10,817 10,295
Non deductible amounts expensed 79,427 43,487
Losses expired 448,949 123,438
Change in tax rate 34,973 307,381
Change in valuation allowance (258,874) 58,287
------------------------------
$ - $ -
==============================
The Company's future income tax assets and liabilities at December 31, 2003
and 2002 are summarized as follows:
2003 2002
-----------------------------------
Property, plant and equipment $ 35,798 $ 20,169
Other (4,187) -
Non-capital losses carried forward 2,044,479 2,314,795
-----------------------------------
Net future tax asset before valuation
allowance 2,076,090 2,334,964
Valuation allowance (2,076,090) (2,334,964)
-----------------------------------
Net future tax asset $ - $ -
===================================
18
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Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
8. Income Taxes - (continued)
- -- --------------------------
As at December 31, 2003, the Company has available tax losses for Canadian
income tax purpose that may be carried forward to reduce taxable income
derived in future years. A summary of these losses is provided below. These
losses will expire as follows:
2004 $ 512,344
2005 1,204,046
2006 603,108
2007 633,293
2008 781,825
2009 1,343,572
2010 582,058
--------------------
$ 5,660,246
====================
A valuation allowance has been recorded to offset the potential benefits of
these carry-forward non-capital losses and deductible temporary differences
in these consolidated financial statements as the realization thereof is
not considered more likely than not. In addition, the Company had capital
losses of $28,318,924 (2002 - $23,387,988) which could be used to offset
capital gains in future tax periods.
- --------------------------------------------------------------------------------
9. Lease Commitments
- -- -----------------
The Company's future minimum lease commitments for office premises as at
December 31, 2003 for the following two years are as follows:
2004 $ 108,328
2005 72,219
This cost is shared equally with a related company.
- --------------------------------------------------------------------------------
10. Recovery of Legal Fees
- --- ----------------------
During the year the Company received an amount relating to a court award in
a legal case over the ownership of metals inventory.
19
================================================================================
Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
11. Contingent Liability
- --- --------------------
In March 1999, a Congolese court ruled against Sakima in connection with a
claim filed by a South African company for payment of mining consumables
supplied to a predecessor company. The claim is in the amount of $537,224
plus $300,000 in damages. There is some uncertainty surrounding the claim
and the execution of the judgment at this time. Management does not believe
that a liability exists and is pursuing rectification of the judgment in
the Congolese Supreme Court. No provision has been made in these financial
statements for this claim.
- --------------------------------------------------------------------------------
12. Segmented Reporting
- --- -------------------
The Company has one operating segment: the acquisition, exploration and
development of precious metal projects located principally in the
Democratic Republic of the Congo.
Geographic segmentation of capital assets and deferred exploration costs is
as follows:
2003 2002
----------------------------------
Democratic Republic of the Congo - deferred exploration costs $ 322,690 $ -
Democratic Republic of the Congo - capital assets 68,983 -
Canada - capital assets 73,473 111,619
----------------------------------
$ 465,146 $ 111,619
===================================
- --------------------------------------------------------------------------------
13. Subsequent Events
- --- -----------------
(a) Stock Options
Subsequent to the year end, the Company granted 800,000 additional
stock options to acquire common shares of the Company at exercise
prices ranging from Cdn. $6.00 to Cdn. $8.20 per share expiring
between January 21, 2009 and March 16, 2009.
(b) Investment in BRC Development Corporation
On March 10, 2004 the Company completed a debt settlement transaction
with BRC Development Corporation (BRC). Pursuant to this transaction,
the Company purchased 244,032 common shares of BRC at a price of Cdn.
$1.35 per share, or Cdn. $329,443 in aggregate in order to settle an
outstanding debt of the equivalent amount. The Company now owns a
total of 3,744,032 common shares representing 41.88% of the issued and
outstanding shares of BRC.
20
================================================================================
Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
13. Subsequent Events (continued)
- --- -----------------------------
(c) Financing
On March 30, 2004, the Company completed a private placement (the
"Offering") of 2,000,000 common shares at Cdn. $8.00 per share for
gross proceeds of Cdn. $16,000,000 (US$ 11,979,203). The net proceeds
of the financing will be used to advance the Company's projects in the
Democratic Republic of the Congo located within the Twangiza - Namoya
gold belt and for general corporate purposes.
Kingsdale Capital Markets Inc. and Kingsdale Capital Partners Inc.
(collectively, the "Agent") acted as the Company's agent in connection
with the Offering. In consideration for its services, the Company paid
to the Agent a cash fee equal to 6% of the gross proceeds of the
Offering and issued to the Agent 120,000 broker warrants (the "Broker
Warrants"). Each Broker Warrant entitles the holder thereof to
purchase one common share of the Company at a price of $8.00 per share
for a period of one year.
- --------------------------------------------------------------------------------
14. Generally Accepted Accounting Principles in Canada and the United States
- --- ------------------------------------------------------------------------
The Company's accounting policies do not differ materially from accounting
principles generally accepted in the United States ("U.S. GAAP") except for
the following:
(a) Employee and Directors Stock Options
Prior to 2003, the Company accounted for employee and director stock
options under APB Opinion No. 25 under which no compensation cost is
recognized when the exercise price equals or exceeds the fair value at
the date of grant. The Company recognized no compensation cost as no
stock options were granted with an exercise price less than fair
value.
Under Canadian GAAP, effective January 1, 2002 on a prospective basis,
the Company adopted the new CICA policy of accounting for stock based
compensation. Compensation expense on stock options granted to
directors, officers and employees, was not recorded. However,
disclosure of the effects of accounting for the compensation expense,
utilizing the fair value method estimated using the Black-Scholes
Option Pricing Model, was disclosed as pro-forma information.
Under Canadian GAAP, effective January 1, 2003 on a prospective basis,
the Company commenced the expensing of all stock based compensation
for new stock option grants applying the fair value method estimated
by using the Black-Scholes Option Pricing Model. For US GAAP the
Company has adopted, effective January 1, 2003 on a prospective basis,
the fair value recognition provisions of SFAS 123.
(b) Mineral Properties
U.S. GAAP requires that costs pertaining to mineral properties with no
proven reserves be reflected as expenses in the period incurred.
21
================================================================================
Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
14. Generally Accepted Accounting Principles in Canada and the United States
(continued)
-----------
(c) Recently issued United States Accounting Standards
In January 2003, the FASB issued Financial Interpretation 46
"Accounting for Variable Interest Entities" ("FIN 46") that will
require the consolidation of certain entities that are controlled
through financial interests that indicate control (referred to as
"variable interests"), subsequently revised through the issuance of
FIN 46R. Variable interests are the rights or obligations that convey
economic gains or losses from changes in the values of the entity's
assets or liabilities. The holder of the majority of an entity's
variable interests will be required to consolidate the variable
interest entity. FIN 46 applies to variable interest entities as of
January 31, 2003, and to variable interest entities created after or
in which an enterprise obtains an interest after that date. The
Company does not have any arrangements with variable interest entities
that will require consolidation of their financial information in the
financial statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". SFAS 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities". The changes are
intended to improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly.
Additionally, those changes are expected to result in more consistent
reporting of contracts as either derivatives or hybrid instruments.
SFAS No. 149 is effective for contracts and hedging relationships
entered into or modified after June 30, 2003, and for provisions that
relate to SFAS No. 133 implementation issues that have been effective
for fiscal quarters that began prior to June 15, 2003, apply in
accordance with their respective effective dates. The adoption of this
statement did not have a significant effect on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and
Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liability and equity. It also requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective generally at the beginning of the
first interim period beginning after June 15, 2003, except for
mandatory redeemable financial instruments of non-public entities. It
is to be implemented by reporting a cumulative effect of a change in
an accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of
the interim period of adoption. Restatement is not permitted. The
adoption of this statement did not have a material effect on the
financial position of the Company or results of its operations.
22
================================================================================
Banro Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 2003 and 2002
- --------------------------------------------------------------------------------
14. Generally Accepted Accounting Principles in Canada and the United States
(continued)
-----------
The impact of the foregoing on the financial statements is as follows:
Income Statement
2003 2002
------------------------------------
Loss per Canadian GAAP $ (860,982) $ (1,405,718)
Deferred exploration (322,690) -
------------------------------------
Loss per U.S. GAAP $ (1,183,672) $ (1,405,718)
====================================
Loss per share $ (0.12) $ (0.15)
====================================
Balance Sheet
2003 2002
------------------------------------
Total assets per Canadian GAAP $ 2,698,426 $ 2,835,976
Deferred exploration (322,690) -
------------------------------------
Total assets per U.S. GAAP $ 2,375,736 $ 2,835,976
====================================
Total liabilities per Canadian and U.S. GAAP $ 40,953 $ 85,814
====================================
Shareholders' equity:
Share capital per Canadian and U.S. GAAP $ 39,469,888 $ 39,173,793
====================================
Contributed surplus per Canadian GAAP
and U.S. GAAP $ 502,014 $ 29,816
====================================
Deficit per Canadian GAAP $(37,314,429) $ (36,453,447)
Deferred exploration (322,690) -
------------------------------------
Deficit per U.S. GAAP $(37,637,119) $ (36,453,447)
====================================
Total shareholders' equity per U.S. GAAP $ 2,334,783 $ 2,750,162
====================================
Total liabilities and shareholders' equity per
U.S. GAAP $ 2,375,736 $ 2,835,976
====================================
23