Exhibit 99.5
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
The consolidated financial statements of the company have been prepared in
accordance with Canadian GAAP. The significant differences between Canadian
and U.S. GAAP, and their effect on the consolidated financial statements of
the Company, are described below.
Consolidated statements of operations:
The following table reconciles net loss as reported in the accompanying
consolidated statements of loss to net loss that would have been reported
had the financial statements been prepared in accordance with U.S. GAAP:
YEAR ENDED DECEMBER 31
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2002 2003 2004
------------ ----------- -----------
Net loss in accordance with Canadian
GAAP $(10,311,130) $(6,948,040) $(8,774,864)
Website Development (a) $ -- $ -- $ (295,585)
Website Development Amortization (a) $ 174,605 $ 174,605 $ --
Non-Employee Stock Options (b) $ (560,214) $ (81,338) $ --
------------ ----------- -----------
Net loss in accordance with U.S. GAAP $(10,696,739) $(6,854,773) $(9,070,449)
Other comprehensive income (loss):
Foreign currency translation adjustment $ -- $ (43,633) $ (33,420)
------------ ----------- -----------
Comprehensive loss in accordance with
U.S. GAAP $(10,696,739) $(6,898,406) $(9,103,869)
Loss per Share $ (0.21) $ (0.12) $ (0.13)
The cumulative effect of these adjustments on shareholders' equity is as
follows:
YEAR ENDED DECEMBER 31
---------------------------------------
2002 2003 2004
----------- ----------- -----------
Shareholders' Equity in accordance with
Canadian GAAP $(4,414,195) $(5,222,807) $(8,935,827)
Website Development Costs (a) $ (523,815) $ (523,815) $ (819,400)
Website Development Amortization (a) $ 349,210 $ 523,815 $ 523,815
Public Status (d) $ (50,000) $ (50,000) $ (50,000)
----------- ----------- -----------
Shareholders' Equity in accordance with
U.S. GAAP $(4,638,800) $(5,272,807) $(9,281,412)
The cumulative effect of these adjustments on the company's reported assets is
as follows:
YEAR ENDED DECEMBER 31
---------------------------------------
2002 2003 2004
----------- ----------- -----------
Assets in accordance with Canadian
GAAP $13,140,020 $27,481,287 $30,179,854
Website Development Costs (a) $ (523,815) $ (523,815) $ (819,400)
Website Development Amortization (a) $ 349,210 $ 523,815 $ 523,815
Public Status (d) $ (50,000) $ (50,000) $ (50,000)
----------- ----------- -----------
Assets in accordance with U.S. GAAP $12,915,415 $27,431,287 $29,834,269
Effect of these adjustments on the consolidated statement of cash flows is as
follows:
YEAR ENDED DECEMBER 31
--------------------------------------
2002 2003 2004
---------- ----------- -----------
CASH FLOWS USED IN OPERATING ACTIVITIES
Cash flows provided by (used in) operating
activities in accordance with Canadian
GAAP $2,876,504 $(2,352,995) $(1,406,454)
Website Development (a) $ -- $ -- $ (295,585)
---------- ----------- -----------
Cash flows provided by (used in) operating
activities in accordance with U.S. GAAP $2,876,504 $(2,352,995) $(1,702,039)
CASH FLOWS USED INVESTING ACTIVITIES
Cash flows used in investing activities in
accordance with Canadian GAAP $ (310,575) $ (469,083) $(5,012,139)
Website Development (a) $ -- $ -- $ 295,585
---------- ----------- -----------
Cash flows used in investing activities in
accordance with U.S. GAAP $ (310,575) $ (469,083) $(4,716,554)
(a) Canadian GAAP allows the capitalization and amortization of website
development costs incurred, subject to there being reasonable assurance
that future benefits will be realized. Under United States GAAP, SOP 98-1
provides specific guidance on when capitalization may commence, and what
direct costs may be capitalized. For United States GAAP purposes, costs
incurred in the preliminary project phased have been expensed at the time
the costs were incurred and the amortization recorded under Canadian GAAP
would have been reversed.
(b) Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards 123 ("SFAS No. 123"), Accounting for Stock-based
Compensation, requires recognition of compensation expense costs at fair
value for stock options and warrants issued after December 15, 1995, to
non-employees, such as members of the Board of Advisors, and other
consultants and advisors. The fair value of the non-employee stock options
and warrants granted after December 15, 1995 has been estimated as the
performance occurs and the options are earned using the Black-Scholes
option pricing model. Under Canadian GAAP, all stock-based compensation
granted to non-employees prior to January 1, 2002 has not been accounted
for, however, the company has accounted for all stock-based compensation
granted to non-employees after January 1st, 2002 using the fair value
method.
Accordingly, for United States GAAP purposes the company has calculated the
fair value of stock options granted to non-employee prior to January 1st,
2002 and recorded the cost by increasing the deficit with the offsetting
increase to contributed surplus (no impact to total shareholders' equity).
(c) Prior to 2002, the company accounted for the stock option plans under the
recognition and measurement provisions of AFB Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations using the
intrinsic value method of accounting. No expense had been recorded prior to
2002 as all options granted under the plans had an exercise price equal to
the market value of the underlying common stock on the date of the grant.
Starting January 1, 2002 the company adopted the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, prospectively to all employee awards granted, modified or
settled after January 1, 2002 for United States GAAP and Canadian GAAP
purposes.
In accordance with United States GAAP, pro forma disclosure of all stock
options issued prior to January 1, 2002 that are not accounted for under
SFAS No. 123 is required. Below is the pro forma disclosure showing the
effect on the company's loss had the company accounted for these options
using the fair-value method prescribed in SFAS No. 123.
The pro forma disclosure for U.S. GAAP is as follows:
YEAR ENDED DECEMBER 31
----------------------------------------
2002 2003 2004
------------ ----------- -----------
Net loss in accordance with United
States GAAP $(10,696,739) $(6,898,406) $(9,103,869)
Deduct: Stock based compensation costs
using fair value method for options
issued prior to Jan 1, 2002 $ (146,333) $ (102,831) $ (16,964)
------------ ----------- -----------
Pro forma net loss in accordance with
U.S. GAAP $(10,843,072) $(7,001,237) $(9,120,833)
Loss per share:
Basic - as reported $ (0.21) $ (0.12) $ (0.13)
Basic - pro forma $ (0.21) $ (0.12) $ (0.13)
(d) In accordance with Canadian GAAP- EIC 10 (prior to 2002), the Company
capitalized $150,000 (which was credited to share capital), representing
the value assigned to its
public listing in connection with the reverse takeover when it went public.
__, $100,000 of these costs were subsequently amortized. Effective fiscal
2002, in accordance with the CICA Handbook Section 3061/3062, the Company
ceased amortization of these costs as the balance of intangible assets was
not subject to amortization.
United States GAAP does not permit the recognition of such an asset in
conjunction with a reverse takeover. As a result, share capital prior to
2002 would be decreased by $150,000, intangible assets would be decreased
by $50,000 and the deficit would be reduced by $100,000.