EXHIBIT 99.4
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CIROND NETWORKS, INC.
AS AT DECEMBER 31, 2002 AND 2001 AND FOR THE YEAR ENDED
DECEMBER 31, 2002 AND THE PERIOD FROM INCEPTION (MARCH 7, 2001)
TO DECEMBER 31, 2001
Consolidated Financial Statements of
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
(Expressed in United States dollars)
Year ended December 31, 2002
INDEPENDENT AUDITORS' REPORT
To the stockholder of Cirond Networks, Inc.
We have audited the accompanying consolidated balance sheets of Cirond Networks,
Inc. (a Development Stage Enterprise) as at December 31, 2002 and 2001, and the
related consolidated statements of loss and cash flows for the year ended
December 31, 2002, the period from inception (March 7, 2001) to December 31,
2001 and the period from inception (March 7, 2001) to December 31, 2002 and the
consolidated statements of stockholder's deficiency and comprehensive loss for
the period from inception (March 7, 2001) to December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Cirond Networks,
Inc. as at December 31, 2002 and 2001, and the results of its operations and its
cash flows for the periods then ended and for the period from inception to
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2(a) to
the financial statements, the Company has incurred a loss since inception and
has a working capital deficiency, factors that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in note 2(a). The consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
SIGNED "KPMG LLP"
/s/ KPMG LLP
Chartered Accountants
Kelowna, Canada
September 30, 2003
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in United States dollars)
December 31, 2002 and 2001
=============================================================================================================
2002 2001
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 60,135 $ 1,434
Amounts receivable 3,513 -
Prepaid expenses and deposits 412 -
----------------------------------------------------------------------------------------------------------
64,060 1,434
Property, plant and equipment (note 3) 19,634 -
Website development (note 4) 15,854 -
- -------------------------------------------------------------------------------------------------------------
$ 99,548 $ 1,434
=============================================================================================================
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (note 5) $ 114,521 $ 5,466
Consulting fees payable 45,000 -
Due to stockholder (note 6) 143,155 -
----------------------------------------------------------------------------------------------------------
302,676 5,466
Stockholder's deficiency:
Capital stock:
20,000,000 non-voting preferred shares with $0.0001 par
value, issuable in series authorized, nil issued
80,000,000 voting common shares, with $0.0001 par value
authorized, 14,740,250 issued
(December 31, 2001 - 14,341,667) 1,474 1,434
Additional paid-in capital 298,898 -
Deficit accumulated during the development stage (503,500) (5,466)
----------------------------------------------------------------------------------------------------------
(203,128) (4,032)
Going concern (note 2(a))
Subsequent events (note 8)
- -------------------------------------------------------------------------------------------------------------
$ 99,548 $ 1,434
=============================================================================================================
See accompanying notes to consolidated financial statements.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Consolidated Statements of Loss
(Expressed in United States dollars)
==============================================================================================================
From inception From inception
(March 7, 2001) Year ended (March 7, 2001)
to December 31, December 31, to December 31,
2002 2002 2001
- --------------------------------------------------------------------------------------------------------------
Expenses:
Advertising and promotion $ 42,603 $ 42,603 $ -
Amortization 6,877 6,877 -
Consulting fees (note 6) 224,068 224,068 -
Foreign currency loss 3,506 3,506 -
Interest 111 111 -
Office and administrative 8,181 7,715 466
Professional fees 52,915 47,915 5,000
Rent 5,709 5,709 -
Salaries and benefits 135,729 135,729 -
Travel 24,063 24,063 -
- --------------------------------------------------------------------------------------------------------------
503,762 498,296 5,466
- --------------------------------------------------------------------------------------------------------------
Loss before interest income (503,762) (498,296) (5,466)
Interest income 262 262 -
- --------------------------------------------------------------------------------------------------------------
Loss $ (503,500) $ (498,034) $ (5,466)
==============================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 14,528,055 14,680,739 14,341,667
Loss per share, basic and diluted $ (0.03) $ (0.03) $ (0.00)
==============================================================================================================
See accompanying notes to consolidated financial statements.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholder's Deficiency and Comprehensive Loss
(Expressed in United States dollars)
From inception (March 7, 2001) to December 31, 2002
==============================================================================================================
Deficit
accumulated Total
Additional during the stockholder's
Common Stock paid-in development equity
Shares Amount capital stage (deficiency)
- --------------------------------------------------------------------------------------------------------------
Shares issued for cash 14,341,667 $ 1,434 $ - $ - $ 1,434
on March 7, 2001
Comprehensive loss:
Loss - - - (5,466) (5,466)
- --------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2001 14,341,667 1,434 - (5,466) (4,032)
Shares issued for cash from
February 12 to March 25,
2002 at $0.75 per share 398,583 40 298,898 - 298,938
Comprehensive loss:
Loss - - - (498,034) (498,034)
- --------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2002 14,740,250 $ 1,474 $ 298,898 $ (503,500) $ (203,128)
==============================================================================================================
See accompanying notes to consolidated financial statements.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
==============================================================================================================
From inception From inception
(March 7, 2001) Year ended, (March 7, 2001)
to December 31, December 31, to December 31,
2002 2002 2001
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (503,500) $ (498,034) $ (5,466)
Item not involving cash:
Amortization 6,877 6,877 -
Changes in non-cash working capital:
Amounts receivable (3,513) (3,513) -
Prepaid expenses and deposits (412) (412) -
Accounts payable and accrued liabilities 114,521 109,055 5,466
Consulting fees payable 45,000 45,000 -
---------------------------------------------------------------------------------------------------------
(341,027) (341,027) -
Financing:
Common shares issued for cash 300,372 298,938 1,434
Advances from stockholder 143,155 143,155 -
---------------------------------------------------------------------------------------------------------
443,527 442,093 1,434
Investing:
Expenditures on website development (19,025) (19,025) -
Expenditures on fixed assets (23,340) (23,340) -
---------------------------------------------------------------------------------------------------------
(42,365) (42,365) -
- --------------------------------------------------------------------------------------------------------------
Increase in cash 60,135 58,701 1,434
Cash, beginning of period - 1,434 -
- --------------------------------------------------------------------------------------------------------------
Cash, end of period $ 60,135 $ 60,135 $ 1,434
==============================================================================================================
Supplementary information:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
==============================================================================================================
See accompanying notes to consolidated financial statements.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
1. OPERATIONS:
Cirond Networks, Inc. (the "Company") is incorporated under the laws of the
State of Nevada. The Company's principle business activities include the
development and marketing of solutions for wireless networking designed to
enhance the usability, performance, and security of 802.11b and 802.11a
(WiFi) Wireless Local Area Networks (WLAN). The Company is primarily
targeting enterprises and institutional customers requiring the use of
wireless networks. To December 31, 2002, the Company has not generated
revenues and is continuing to develop its business model. Accordingly, the
Company is in the development stage for financial reporting purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities and commitments in the normal course of business for the
foreseeable future. As shown in the consolidated financial statements,
the Company has incurred a loss of $503,500 for the period from
inception (March 7, 2001) to December 31, 2002, and has a working
capital deficiency of $238,616 at December 31, 2002. These factors
raise substantial doubt as to the Company's ability to continue as a
going concern.
The application of the going concern concept is dependent upon the
Company's ability to receive continued financial support from its
creditors, stockholder and external investors and attaining profitable
operations through the sale of its software. These consolidated
financial statements do not give effect to any adjustment should the
Company be unable to continue as a going concern and, therefore, be
required to realize its assets and discharge its liabilities in other
than the normal course of business and at amounts differing from those
reflected in the consolidated financial statements. Management plans to
rely on its stockholder to obtain equity and debt financing from
external investors and to actively market its wireless technology
applications.
Management believes the plan described above will be sufficient to meet
the Company's liabilities and commitments as they become payable over
the next twelve months. There can be no assurance that management's
plan will be successful. Failure to obtain the support of additional
external investors to finance the development and marketing of the
Company's wireless technology applications will cause the Company to
curtail operations and impair the Company's ability to continue as a
going concern.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Basis of consolidation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America and include the accounts of the Company and its wholly-owned
subsidiary Cirond Networks (Canada) Inc. All material intercompany
balances and transactions have been eliminated.
c) Property, plant and equipment
Property, plant and equipment, consisting of computer hardware and
software and office equipment, are recorded at cost. The Company
monitors the recoverability of property, plant and equipment based on
estimates using factors such as expected future asset utilization,
business climate and future undiscounted cash flows expected to result
from the use of the related assets or be realized on sale. The Company
recognizes an impairment loss if the projected undiscounted future cash
flows are less than the carrying amount. The amount of the impairment
charge, if any, is measured equal to the excess of the carrying value
over the expected future cash flows discounted using the Company's
average cost of funds. To date no such impairment has been indicated.
Amortization is provided on a straight-line basis at the following
annual rates which is intended to amortize the cost of assets over
their estimated useful life:
=======================================================================
Rate
-----------------------------------------------------------------------
Computer hardware 33%
Computer software 50%
Furniture and equipment 20%
=======================================================================
A half-year of amortization is recorded in the year of purchase.
d) Website development
Website development costs incurred in the planning stage are expensed
as incurred. The costs of application and infrastructure development
incurred subsequent to the preliminary project stage, and that have
received management approval for further development, are capitalized
and amortized on the straight-line method over their estimated useful
life (estimated to be three years). Once the website is developed,
operating costs are expensed as incurred.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) Revenue recognition
In accordance with the provisions of the American Institute of
Certified Public Accountant's Statement of Position 97-2 "Software
Revenue Recognition", revenue from one-time software license sales is
generally recognized once delivery has occurred, evidence of an
arrangement exists, the fee is fixed and determined and collection of
the fee is probable, provided there are no significant vendor
obligations remaining.
f) Income taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
When it is not considered to be more likely than not that a deferred
tax asset will be realized, a valuation allowance is provided for the
excess.
The Company has consolidated non-capital losses available to reduce
future years' taxable income of approximately $500,000, expiring in the
2008 - 2009 taxation years. No amount has been reflected on the
consolidated balance sheet for deferred income taxes as any deferred
income tax asset has been fully offset by a valuation allowance.
g) Loss per share
Basic loss per share has been calculated by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Income available to common shareholders
is after deduction for dividends declared and cumulative dividends on
preferred shares, if any.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
h) Translation of financial statements
The Company's functional currency is the United States dollar. The
Company's subsidiary, Cirond Networks (Canada) Inc. operates in Canada
and incurs the majority of its expenses in Canadian dollars, however
the United States dollar has been determined to be its functional
currency, as it is entirely reliant upon the Company and the Company's
stockholder to fund its operations. Accordingly the method of
translation of Canadian dollar balances into the United States dollar
is as follows:
i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date.
ii) Non-monetary assets and liabilities are translated at the rate of
exchange in effect at the date the transaction occurred.
iii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iv) The net adjustment arising from the translation is included in
the consolidated statement of loss.
i) Recent accounting pronouncements
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Statement 146 requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Statement 146 will supersede
accounting guidance previously provided by EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 will be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The provisions
of this statement are not expected to have a material impact on the
Company's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. Interpretation No. 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company
must recognize and record an initial liability for the fair value of
the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The
disclosure provisions are
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
i) Recent accounting pronouncements (continued)
effective for periods ending after December 15, 2002. The initial
recognition and initial measurement provisions apply on a prospective
basis to guarantees issued or modified after December 31, 2002.
Implementation of this interpretation is not expected to have a
material effect on the Company's financial position or results of
operations.
During January 2003, the FASB issued and revised its Interpretation No.
46, Consolidation of Variable Interest Entities. The interpretation
addresses consolidation of certain entities in which equity investors
do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The Company will be required to apply the consolidation
provisions of the interpretation as of the beginning of its second
quarter of fiscal 2004. Implementation of Interpretation No. 46, as
revised, is not expected to have a material effect on the Company's
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 requires that certain financial instruments issued
in the form of shares that are mandatorily redeemable as well as
certain other financial instruments be classified as liabilities in the
financial statements. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The provisions
of this statement are not expected to have a material impact on the
Company's consolidated financial position or results of operations.
j) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
3. PROPERTY, PLANT AND EQUIPMENT:
===========================================================================
Cost Accumulated Net book
amortization value
----------------------------------------------------------------------
Computer hardware 13,310 2,218 11,092
Computer software 3,235 808 2,427
Furniture and equipment 6,795 680 6,115
----------------------------------------------------------------------
23,340 3,706 19,634
===========================================================================
4. WEBSITE DEVELOPMENT:
===========================================================================
Cost Accumulated Net book
amortization value
----------------------------------------------------------------------
Website development costs 19,025 3,171 15,854
===========================================================================
5. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 2002, the Company incurred consulting
fees from a company controlled by the president totaling $120,000 (from
inception on March 7, 2001 to December 31, 2001 - $nil). At December 31,
2002, $20,000 of these consulting fees were included in accounts payable
and accrued liabilities.
The amounts were not subject to a written agreement but were incurred in
the normal course of operations and are recorded at the exchange amount,
which is the amount established and agreed to by the related parties.
6. DUE TO STOCKHOLDER:
Due to stockholder is unsecured, non-interest bearing and has no fixed
terms of repayment.
7. FINANCIAL INSTRUMENTS
The fair values of cash, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values due to the relatively
short periods to maturity of these instruments. It is not practical to
determine the fair value for due to parent due to the related party nature
of the amount and the absence of a market for such financial instruments.
The maximum credit risk exposure for all financial assets is the carrying
amount of that asset.
CIROND NETWORKS, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Year ended December 31, 2002, from inception (March 7, 2001) to December 31,
2001 and from inception (March 7, 2001) to December 31, 2002
================================================================================
8. SUBSEQUENT EVENTS:
a) Subsequent to December 31, 2002, the Company received advances from
related parties aggregating $410,000 net of financing costs. The
related parties are shareholders of the Company's stockholder and
associates of shareholders of the Company's stockholder. The advances
are unsecured, do not bear interest and are not subject to a formal
written agreement.
b) On February 7, 2003, the Company signed an agreement with a third party
to identify and secure potential sources of funding. The agreement
requires the Company to pay a monthly retainer of $10,000,
reimbursement of out-of-pocket expenses and payment of a fee of 2.5% of
any funds secured by the third party. One half of the monthly retainer
is payable upon the Company securing funding. The initial term of the
agreement is six months and is cancelable by either party subsequent to
expiry of this period. Certain sources of funding are exempt or limited
by the agreement with respect to the 2.5% fee.
c) On May 1, 2003, the Company entered an operating lease for office
premises that requires the following annual minimum lease payments:
=======================================================================
2003 $ 13,581
2004 $ 19,617
2005 $ 21,630
2006 $ 5,533
=======================================================================