TELEMAX COMMUNICATIONS INC.
BALANCE SHEET
JUNE 30, 2000 and 1999
(Unaudited)
ASSETS
2000 1999
----------- -----------
CURRENT
Cash and cash equivalents $ -- $ 180,343
Accounts receivable 374,807 187,695
Inventory 48,909 14,320
Prepaid expenses 23,652 30,539
----------- -----------
447,368 412,897
CAPITAL ASSETS (Note 3) 129,794 57,659
----------- -----------
$ 577,162 $ 470,556
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LIABILITIES
CURRENT
Bank indebtedness $ 50,950 $ --
Accounts payable 549,724 430,444
Accrued liabilities -- 52,529
Bank loans payable (Note 4) 199,351 --
Current portion of loans payable (Note 5) 33,788 33,933
Current portion of capital lease (Note 6) 9,123 --
----------- -----------
842,936 516,906
LOANS PAYABLE (Note 5) 9,970 135,731
CAPITAL LEASE OBLIGATIONS (Note 6) 31,930 --
DIRECTORS' LOANS (Note 7) 464,669 208,280
----------- -----------
1,349,505 860,917
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STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK (Note 8) 679 679
DEFICIT (770,948) (385,665)
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS (2,074) (5,375)
----------- -----------
(772,343) (390,361)
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$ 577,162 $ 470,556
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SEE ACCOMPANYING NOTES
TELEMAX COMMUNICATIONS INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
SALES $ 6,487,433 $ 1,972,947
COST OF SALES 5,622,394 1,701,294
----------- -----------
GROSS PROFIT 865,039 271,653
EXPENSES
Research and development 303,768 89,909
Salaries and benefits 286,618 83,736
Sales commissions 190,678 124,090
Rent 80,183 57,513
General and administrative 72,977 35,107
Depreciation 52,350 13,092
Advertising and promotion 45,007 9,723
Interest and bank charges 38,276 18,145
Consulting fees 37,280 14,365
Automotive expenses 31,392 13,448
Telephone 26,149 6,604
Equipment rental 22,527 632
Foreign exchange loss 21,969 --
Travel 14,865 14,595
Bad debts 11,620 --
Legal and accounting 10,216 3,566
Insurance 2,341 497
Repairs and maintenance 2,106 2,426
----------- -----------
1,250,322 487,448
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NET LOSS (385,283) (215,795)
DEFICIT, beginning of year (385,665) (169,870)
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DEFICIT, end of year (770,948) (385,665)
=========== ===========
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency translation adjustments 3,301 (5,168)
----------- -----------
OTHER COMPREHENSIVE LOSS $ (381,982) $ (220,963)
=========== ===========
SEE ACCOMPANYING NOTES
TELEMAX COMMUNICATIONS INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 and 1999
(Unaudited)
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(385,283) $(215,795)
Items not affecting cash:
Depreciation 52,350 13,092
--------- ---------
(332,933) (202,703)
CHANGES IN NON-CASH WORKING CAPITAL:
Increase in accounts receivable (187,112) (138,632)
Decrease (increase) in prepaid expenses 6,888 (20,347)
Increase (decrease) in inventories (34,590) 18
Increase in accounts payable and accrued liabilities 66,751 396,261
--------- ---------
(480,996) 34,597
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank loans 73,445 169,664
Increase in capital lease obligations 41,092 --
Payments under capital lease obligations (9,162) --
Increase in directors' loans 256,389 40,311
--------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES 361,764 209,975
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets (115,361) (63,598)
--------- ---------
EFFECT OF FOREIGN CURRENCY TRANSACTIONS ON CASH 3,301 (5,168)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (231,292) 175,806
NET CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 180,343 4,537
--------- ---------
NET CASH AND CASH EQUIVALENTS, END OF YEAR
$ (50,949) $ 180,343
========= =========
SEE ACCOMPANYING NOTES
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
1. ORGANIZATION
The Company was incorporated under the laws of the province of Ontario
on May 12, 1997. It manufactures and is a distributor of prepaid
telephone cards operating under the trade name Telemax Communications
Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. The financial
statements have been translated to U.S. Dollars using the current rate
method. Outlined below are those policies considered particularly
significant for the Company. These financial statements are unaudited.
(a) Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash equivalents
consist of money market funds and demand deposits in banks, purchased
with a maturity of three months or less. The Company has no such items
at June 30, 2000 and had $101,800 at June 30, 1999.
(b) Inventory
Inventory of activated and un-activated prepaid telephone cards is
valued at the lower of cost and market.
(c) Fair value of financial instruments
The Company estimates that the fair value of all financial instruments
at June 30, 2000 and 1999 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the balance
sheet. The estimated fair value of amounts of receivables, accounts
payable and accrued liabilities approximate fair value due to their
short-term nature. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and accordingly,
the estimates are not necessarily indicative of the amounts that the
Company could realize in a current market exchange.
(d) Capital Assets
Capital assets are recorded at cost. Expenditures for normal
maintenance and repairs are charged to expense as incurred.
Depreciation is provided annually at rates calculated to write-off the
assets over the estimated useful lives of the related assets.
Depreciation expense was $53,350 for the year ended June 30, 2000 and
$13,092 for the year ended June 30, 1999.
Computer hardware - 12 years straight line
Computer software - 2 years straight line
Furniture and fixtures - 10 years straight line
Office equipment under capital lease - 10 years straight line
Telephone equipment - 12 years straight line
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
(e) Income taxes
The Company has filed corporate federal and provincial income tax
returns through April 30, 2000, and has net operating loss
carryforwards of $648,192 available to offset financial statement or
tax return taxable income in future periods:
Year Loss Expire
---- ---- ------
2000 $413,910 2007
1999 $120,920 2006
1998 $113,362 2005
(f) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
3. BANK LOANS PAYABLE
The Company's bankers have provided the Company with a line of credit
facility of $202,750, with interest at the bank's prime plus 1.25%, secured
by a general security agreement over the Company's assets.
4. LOANS PAYABLE
The Company was provided with a Small Business Loan by its bankers in the
amount of $169,000, with interest at bank's prime plus 2.5%, which is
secured by capital assets. The Company has prepaid capital in the amount of
$91,395. Repayment is $2,800 monthly, and will mature September 30, 2001.
5. CAPITAL LEASE OBLIGATIONS
The Company has leased office equipment for a 5 year-term repayable
quarterly at $2,900 plus interest at 6%. The Company has the option to buy
the equipment after 20 months for 48% of purchase price, $22,000.
6. DIRECTORS' LOANS
Non-interest bearing loans by directors are reported as long-term as
advances are without terms of repayment.
7. CAPITAL STOCK
Authorized
Unlimited number of no par value common shares Unlimited number of no par
value Class "A" shares Stated Capital
2000 1999
---- ----
1000 common shares $ 679 $ 679
========== ==========
8. SUBSEQUENT EVENTS
The Company entered into an agreement effective July 31, 2000, part of which
provides for $2,703,000 injection of capital to be paid in 4 equal
installments plus interest at 12% on the outstanding balance:
November 1, 2000 $675,750
January 1, 2001 $675,750
April 1, 2001 $675,750
July 1, 2001 $675,750 plus accrued interest
The proceeds are to be used to provide funds for expanding the Company's
operations.
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date.
The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure, which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.