SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended March 31, 2002
Commission file number 00032559
DIGITAL ROOSTER.COM INC.
AN ONTARIO, CANADA CORPORATION
366 BAY STREET, 12TH FLOOR, TORONTO, ONTARIO M5H 4B2
(416) 815-1771; FAX (416) 815-1259
3A. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements and the notes thereto attached beginning
at page F2 Of this registration and Item 5 "Operating and Financial Review and
Prospects".
ALL VALUES ARE EXPRESSED IN CANADIAN DOLLARS.
(Seven Months Year (Seven Months Year Year
Ended) Ended Ended) Ended Ended
August 31/98 August 31/99 March 31/00 March 31/01 March 31/02
Web Dream Web Dream Consolidated Consolidated Consolidated
Operations Audited Audited Audited Audited Audited
Sales 226,263 1,821,413 1,409,764 2,508,122 1,227,878
Cost of Sales 40,846 765,944 578,265 737,562 348,525
Gross Profit 185,417 1,055,469 831,499 1,770,560 879,353
Expenses 180,444 1,191,187 1,265,191 2,659,616 1,914,661
Net Income 4,973 -135,718 -433,692 -889,056 -1,035,308
Income per Share 0.0002 -0.009 -0.01 -0.03 -0.03
Weighted Average 10,000,000 10,079,712 26,144,464 30,958,948 34,062,373
1.
BALANCE SHEET INFORMATION
Current Assets 17,315 69,244 239,781 145,506 139,267
Capital Assets 43,976 108,253 125,297 184,876 135,304
Goodwill 326,978 258,739 190,501
Due from Jazz Monkey 255,207
Total Assets 61,291 177,477 917,263 589,121 465,072
Accounts Payable and
Accrued Liabilities 38,818 95,992 171,913 471,251 607,996
Income Tax Payable 2,415 2,415 2,415
Deferred Revenue 46,675 15,961 170,967
Loans Payable 16,500 17,404 76,561 76,900
Due to Shareholder 38,638 45,571 36,300 109,725
Due to Jazz Monkey 5,188
Note Payable 90,000 90,000 90,000
Convertible Note 125,144
Total Liabilities 55,318 157,222 356,574 692,488 1,183,147
Capital 1,000 151,000 1,125,126 1,350,126 1,183,147
Retained Earnings 4,973 -130,745 -564,437 -1,453,493 -2,488,801
Total Shareholders Equity 5,973 20,255 560,689 -103,367 -718,075
Liabilities and
Shareholders Equity 61,291 177,477 917,263 589,121 465,072
Item 3D
Risk Factors
We have a limited history of operations and recorded losses in our fiscal years
1999,2000, 2001 and 2002. Web Dream began operations as a company in February
1998 and recorded losses of $135,718 ($94,907) for the period ended August 31,
1999, $433,692 ($298,295) in the year ended March 31, 2000, $889,056 ($563,514)
in the year ended March 31, 2001 and $1,035,308 ($659,642) in the year ended
March 31, 2002. Our prospects must be considered in light of the risks,
expenses, and difficulties frequently encountered by companies in their early
stages of development. We expect to continue to incur losses on a monthly basis
until approximately November 2002. There can be no assurance that we will
continue to incur losses after November 2002,or that any of our business
strategies will be successful.
Our Independent accountants have expressed a going concern qualification in
footnote # 1 to our audited financial statements. Because of our operating
losses of the past three years and our working capital deficiency as at March
31, 2002, our continuance as a going concern is dependent upon our ability to
obtain adequate financing or to reach profitable levels of operation. It is not
possible to predict whether financing efforts will be successful or if we will
attain profitable levels of operations.
Our common shares are considered to be penny stock, which may adversely affect
the liquidity of our common shares. The Securities and Exchange Commission has
adopted regulations that define a penny stock to be any equity security that has
a market price, as defined in those regulations, of less than
U.S. $5.00 per share, subject to certain exceptions. Generally, for any
transaction involving a penny stock, a broker-dealer is required to deliver,
prior to the transaction, a disclosure schedule relating to the penny stock
market as well as disclosure concerning, among other things, the commissions
payable, current quotations for the securities and information on the limited
market in penny stocks. The administration requirements imposed by these rules
may affect the liquidity of our common shares.
2.
It may be difficult for our Shareholders to enforce civil liabilities under the
U.S. Federal Securities Laws because we are a Canadian Corporation, incorporated
under Canadian law. The majority of our directors and executive officers are
Canadian citizens or residents. All, or a substantial portion, of these
persons' assets and substantially all of our assets are located outside the
United States. It may not be possible for investors to effect service of
process within the United States upon those persons or to enforce against them
judgments of U.S. Courts based upon civil liabilities under U.S. federal or
state securities laws.
Changes in laws and regulations regarding the dissemination of Adult Content may
restrict our ability to sell or license our products. While we have not been
subject to any enforcement action to prohibit the dissemination of any of our
content to our customers, many territories prohibit the publication of
material defined as "obscene" or in similar terms. If a territory determines
that our content is obscene according to their legal definition of that term, we
may be prohibited from carrying on business in certain jurisdictions, and may be
subject to criminal penalties. There can be no guarantee that we will not be
faced with restrictions on carrying on all or part of our business in the
future.
Control of the Corporation is concentrated in a small number of Shareholders.
Our officers, directors and their affiliates, in the beneficially own
approximately 52% of our outstanding common shares. These shareholders, acting
together, would be able to control most matters requiring approval by
shareholders, including the election of directors. Concentration of large
amounts of our shares in the hands of the principal shareholders may also make
more difficult any takeover, buy-out or change of control of the Corporation not
approved by management.
We may not be able to rise additional financing to sustain growth. Based on
current projections, we will require additional financing in the amount of
500,000 ($318,573) to $1,000,000($637,146) between November 2002 and March
2003. We anticipate raising these funds through private placements of our
securities with sophisticated investors. We have avoided obtaining debt
financing but may have to pursue this option if we are unable to obtain equity
financing on acceptable terms. If we are unable to obtain financing and cannot
pay our debts as they come due, we may be forced to solicit a buyer for the
company or be forced into bankruptcy by our creditors.
We are dependent on a small number of key personnel. We are dependent upon two
key people: John A. van Arem and Anthony Korculanic. Mr. van Arem is
knowledgeable about all aspects of our business and has developed relationships
in the adult entertainment industry that facilitate our business. Mr.
Korculanic maintains on a day-to-day basis business relationships with service
providers, customers, investors, and media. The loss of either of these
individuals could have a material adverse effect on our business. We have no
key-man life insurance policies on these individuals.
We may not be able to maintain our competitive position. The Internet adult
entertainment industry involves rapid technological change and is characterized
by intense and substantial competition. A number of our competitors are well
established, substantially larger and have substantially greater market
recognition, greater resources and broader distribution capabilities than we
have. New competitors are continually emerging. Increased competition by
existing and future competitors could materially and adversely affect our
profitability. Moreover, our success depends on maintaining a high quality of
content. Competition for quality content in the adult industry is intense. The
lack of availability of unique quality content could adversely affect our
business.
The adult entertainment industry is sensitive to economic conditions. When
economic conditions are prosperous, entertainment industry revenues increase;
conversely, when economic conditions are
3.
unfavorable, entertainment industry revenues decline. Any significant decline
in general corporate conditions or the economy that affect consumer spending
could have a material adverse effect on our business.
Our Business is sensitive to capacity constraints and systems failures. We do
not have any business interruption insurance. The stability of our online
services is critical to our reputation, customer retention and achieving market
acceptance of our online web sites destinations. Any system failure, including
network, software or hardware failure, that causes interruption or an increase
in response time of our online services could result in decreased usage of our
services and, if sustained or repeated, could reduce the attractiveness of our
online services to our clients. An increase in the volume of queries conducted
through our online services could strain the capacity of the software or the
hardware we employ, which could lead to slower response time or system failures,
thereby adversely affecting our revenues. We also face technical challenges
associated with higher levels of personalization and localization of content
delivered to users of our online services. Our operations are also dependent in
part upon our ability to protect our operating systems against physical damage
from acts of God, power loss, telecommunications failures, physical break-ins
and similar events. If our back-up systems fail, the occurrence of any of these
events could result in interruptions, delays or cessations in service to users
of our online services, which could have a material adverse affect on our,
results of operations and financial condition. We do not have any business
interruption insurance.
We are also dependent upon search engines, web browsers, Internet service
providers and online service providers to provide Internet users access to our
web sites. Clients may experience difficulties accessing or using any of our web
sites due to system failures or delays unrelated to our operating systems. Any
sustained failure or delay could reduce the attractiveness of our web sites to
our clients. The occurrence of any of the foregoing events could have a material
adverse effect on our business, results of operations and financial condition.
We may be vulnerable to online security risks. Our network may be vulnerable to
unauthorized access, computer viruses and other disruptive problems. We may be
required to expend significant capital or other resources to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
There can be no assurance that such measures will not be circumvented in the
future. If our security systems fail, eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to clients accessing our web sites that could have a
material adverse effect on our business, results of operations and financial
condition.
Our intellectual property may not be adequately protected. Our domain names,
trade secrets and, to a lesser extent our trademarks are critical to our
success. We rely on a combination of copyright and trademark laws, trade secret
protection, confidentiality and non-disclosure agreements and contractual
provisions to protect our intellectual property. There is no guarantee that
these efforts will be adequate; that we will be able to secure appropriate
registrations for all of our marks; or that third parties will not infringe upon
or misappropriate our proprietary rights. Future litigation may be necessary to
enforce and protect our intellectual property rights. We may also be subject to
litigation to defend against claims of infringement of the rights of others or
to determine the scope and validity of the intellectual property rights of
others, which could be costly, divert management's attention, result in the loss
of certain of our proprietary rights, require us to seek licenses from third
parties and prevent us from selling our services, any one of which could have a
material adverse effect on our business, results of operations and financial
condition.
We face potential liability for Internet content. We face potential liability
for negligence, copyright, patent, trademark infringement, defamation,
indecency, disparagement and other claims based on the nature and content of the
materials that we transmit. In addition, we could be exposed to liability with
respect to the unauthorized duplication or transmission of content. Our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed. In addition, the
indemnification for such liability that we generally require from our content
providers may be inadequate.
4.
Any imposition of liability that is not covered by insurance, is in excess of
insurance coverage or is not covered by an indemnification by a content provider
could have a material adverse effect on our business, results of operations and
financial condition.
We may be impeded or prohibited from carrying on business by governmental
regulation. Few laws or regulations currently are directly applicable to access
or commerce on the Internet. However, a number of legislative and regulatory
proposals are under consideration by governments in jurisdictions in which we
conduct business, and, as a result, a number of laws or regulations may be
adopted with respect to Internet user privacy, taxation, infringement, pricing,
quality of products and services and intellectual property ownership. It is also
uncertain as to how existing laws will be applied to the Internet in areas such
as property ownership, copyright, trademark, trade secret, obscenity and
defamation. The adoption of new laws or the adaptation of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our online services, increase the cost of doing business
or otherwise have a material adverse effect on our business, results of
operations and financial condition.
Risks associated with brand development. We believe that establishing and
maintaining brand identity of our web site destinations is critical to our
future success. Promotion and enhancement of our brands will depend largely on
our success in continuing to provide high quality online services, which cannot
be assured. In order to attract and retain subscribers and to promote and
maintain its brands in response to competitive pressures, we may find it
necessary to increase substantially our financial commitment to creating and
maintaining a distinct brand loyalty among our clients. If we are unable to
provide high quality online services, or otherwise fail to promote and maintain
our brands, incur excessive expenses in an attempt to improve, or promote and
maintain our brands, our business, results of operations and financial condition
could be materially and adversely affected.
Foreign Exchange Risk. We have foreign exchange risk because our functional
currency is Canadian dollars and substantially all of our sales are made to U.S.
consumers. An adverse move in foreign exchange rates between the Canadian and
United States dollar could have an adverse effect on our operating results. We
do not hedge against this risk.
Item 4A.4
Information on the Company
The company has rolled out Sinpass and Sexygreen, two products for which it is
looking for additional funding. The current market conditions in general and the
DigitalRooster.com stock price in particular make raising capital difficult.
Although Sexygreen is a service which can be rolled out with minimal financial
support Sinpass does require a significant financial commitment.
The company has been focusing on restructuring to reflect the current
conditions. It has reduced the cost basis of operations by an estimated $400,000
per year, which should start to show by the third fiscal quarter (October 1,
2002).
Going forward with reduced cost of operations and increased revenue from
Sinpass, Sexygreen and other services the companies' shortfall should be greatly
reduced and DigitalRooster.com projects to be at breakeven within 3 to 6 months.
Item 5A.1
Operating Results
Twelve Months Ended March 31, 2002 Compared to the Twelve Months Ended March 31,
2001
For the twelve months ended March 31, 2002 revenue was $ 1,227,878 (782,337)
compared to $2,508,122 (1,590,439) for the period ending March 31, 2001. Cost of
sales were $ 348,525 (218,306) for the twelve months ended March 31, 2002
representing 28% of revenue for that period, compared to $737,562 (467,699)
5.
representing 29% of revenue for the twelve months ended March 31, 2001. The main
reason for the decrease in cost of sales is attributable to the decrease in
revenue, the company's main focus for the twelve months ended March 31, 2002 was
to concentrate on the development and launching of new products to increase
their market share in the adult entertainment sector. The buying and selling of
traffic was very limited in the twelve months ended March 31, 2002. The
Administrative expenses were $ 1,369,681 (857,927) for the twelve months ended
March 31, 2002 to $ 1,318,372 (836,000) for the twelve months ended March 31,
2001 representing 53% of revenue. The administrative expenses remained
relatively stable for both periods in light of the significant decrease in
revenue. Selling expenses were $61,059 (38,246) for the period ended March 31,
2002 representing 5% of total revenue compared to $ 770,512 (488,594)
representing 31% for the twelve months ended March 31, 2002. The decrease in
selling expenses is attributable to the decrease in traffic sales. Computer
expenses were $300,205 (188,039) in the twelve months ended March 31, 2002,
representing 25% of revenue in that period, compared to $ 439,071 (278,422) for
the twelve months ended March 31, 2001 representing 18% of total revenue for
that period.
Computer expenses have decreased; as there has been increased competition for
bandwidth there our price has dropped. Goodwill has been amortized on a
straight-line basis beginning in the fiscal year March 2000 over an estimated
useful life of five years
Six Months Ended September 30, 2001 Compared to Six Months Ended September 30,
2000.
For the six months ended revenues have declined slightly from September 30,
2000, we had total revenue of $1,403,459 (888,828) compared to $1,650,055
(1,094,999) for the period ending September 30, 2000. Cost of Sales were $
640,865 (405,867) for the six months ended September 30, 2001 representing 46%
of revenues for that period, compared to $ 405,090 (268,806) for the six months
ended September 30, 2000 representing 25% of revenues for that period. The main
reason for the increase in cost of sales is due to the increased price of better
quality content that we are supplying to our members. Administrative expenses
were $747,850 (473,623) for the six months ended September 30, 2001 representing
53% of total revenues in that period, compared to $ 584,855 (388,092) for the
six months ended September 30, 2000 representing 35% of revenues for that
period. The increase is due to more professional staff. Selling expenses were
$172,616 (109,320) in the six months ended September 30, 2001 representing 12%
of total revenues in that period, compared to $485,967 (322,473) representing
29% of revenues for that period. The decrease in selling expense is due to the
drop in advertising as the Company's focus to find more effective ways of doing
business. Computer expenses were $130,548 (82,678) in the six months ended
September 30, 2001 representing 9% of revenues in that period, compared to
$155,711 (103,332) for the six months ended September 30, 2000 representing 9%
of total revenues for that period. Computer expenses have remained relatively
stable with this period. Goodwill has been amortized on a straight-line basis
beginning in the fiscal year March 2000 over an estimated useful life of five
year.
Twelve Month Fiscal Year Ended March 31, 2001 Compared to Seven Month Fiscal
Year Ended March 31, 2000.
For the twelve-month year ended March 31, 2001, we had total revenue of
$2,508,122 ($1,590,439), which amounts to an average of $209,011 ($132,537) per
month. For the seven-month year ended March 31, 2000 we earned revenues of
$1,409,764 ($969,643), which amounts to an average of $201,394 ($138,520) per
month. The increase is attributable to an increase in content sales in revenues
in fiscal 2001 compared to fiscal 2000. Cost of sales was $737,562 ($467,699)
for the twelve months ended March 31, 2001 representing 29% of revenues for that
period, compared to $578,265 ($397,734) for the seven months ended in 2000,
representing 41% of revenues for that period. The main reason for the decline in
cost of sales is attributable due to bandwidth cost and administrative overhead.
Administrative expenses were $1,318,371 ($836,000) in fiscal 2001, representing
6.
52% of total revenues in that period, compared to $740,017 ($508,988) in fiscal
2000 representing 23% of total revenues in that period. The increase in
administrative expenses of $578,355 ($327,012) in the twelve month fiscal period
ended March 31, 2001 from the seven month fiscal period ended March 31, 2000 is
attributable to an increase in payroll for professional staff. Selling expenses
were $770,512 ($488,594) in the twelve-month fiscal period ended March 31, 2001,
representing 31% of total revenues in that period, compared to $245,432
($168,809) in the seven month fiscal period ended March 31, 2000 representing
17% of total revenues in that period. The increase in selling expenses of
$525,080 ($319,785) in the twelve-month fiscal period ended March 31, 2001 from
the seven-month fiscal period ended March 31, 2000 is attributable to increased
expenditures for advertising and promotion. Computer expenses were $439,071
($278,422) in the twelve-month fiscal period ended March 31, 2001, representing
17% of total revenues in that period, compared to $221,056 ($152,043) in the
seven-month fiscal period ended March 31, 2000. The increase of $218,015
($126,379) was attributable to additional bandwidth and system development.
Amortization of goodwill was $68,239 ($43,271) for the twelve months ended March
31, 2001, compared to $14,217 ($9,780) for the seven months ended March 31,
2000. Goodwill has been amortized on a straight line basis beginning in the
fiscal year March 2000 over an estimated useful life of five years.
Seven Months Fiscal Year Ended March 31, 2000 Compared to Twelve month Fiscal
Year Ended August 31, 1999
For the seven-month year ended March 31, 2000, we had total revenue of
$1,409,764 ($969,643), which amounts to an average of $201,394 ($138,520) per
month. For the twelve-month year ended August 31, 1999 we earned revenues of
$1,821,413 ($1,273,715), which amounts to an average of $151,784
($106,143) per month. The increase in revenue in our fiscal year ended March
31, 2000 is primarily attributable to increase in sales of traffic to our
websites. Cost of sales were $578,265 ($397,734) for the seven months ended
March 31, 2000 representing 41% of revenues for that period, compared to
$765,944 ($535,625) for the twelve months ended in 1999, representing 42% of
revenues for that period. Administrative expenses were $740,017 ($508,988) in
fiscal 2000, representing 57% of total revenues in that period, compared to
$781,134 ($546,248) in fiscal 1999. The increase in administrative expenses
of $41,117 ($37,260) in the seven-month fiscal period ended March 31, 2000 from
the twelve-month fiscal period ended August 31, 1999 is attributable to an
increase in payroll for designers and programmers. Selling expenses were
$245,432 ($168,809) in the seven-month fiscal period ended March 31, 2000,
representing 17% of total revenues in that period, compared to $213,734
($149,464) in the twelve month fiscal period ended August 31, 1999. The
increase in selling expenses of $31,698 ($19,345) in the seven-month fiscal
period ended March 31, 2000 from the twelve-month fiscal period ended August 31,
1999 is attributable to increased expenditures for advertising and promotion.
Computer expenses were $221,056 ($152,043) in the seven-month fiscal period
ended March 31, 2000, representing 16% of total revenues in that period,
compared to $196,319 ($137,286) in the seven-month fiscal period ended August
31, 1999. The increase in computer expenses of $24,737 ($14,757) is
attributable to additional bandwidth. Amortization of goodwill was $14,217
($9,778) for the twelve months ended August 31, 1999. There was no goodwill
amortization in the twelve-month fiscal period ended August 31, 1998.
Year ended August 31, 1999 Compared to Year ended August 31, 1998
For the 1999 fiscal year, Web Dream had total revenues of $1,209,783, an
increase of more than 680% or $1,054,680 above fiscal 1998 revenues of $155,103.
Cost of sales was $508,740 compared to $28,000 in 1998, representing 42% of
total revenues in 1999 compared to 18% in 1998. Administrative expenses,
selling expenses and computer expenses represented approximately 41%, 12% and
11% of 1999 total revenues, respectively, compared to 41%, 13% and
22%,respectively for the fiscal 1998 period. Administrative expenses
increased by $427,033 largely due to increased payroll obligations. Selling
expenses increased by $122,382 as a result of increased advertising and
promotion. Computer and bandwidth costs increased by $95,800 due to the need for
additional bandwidth and equipment to support
7.
increased sales. Administrative, selling and computer expenses also increased in
fiscal 1999 compared to fiscal 1998 because our 1999 fiscal year was 12 months
while our 1998 fiscal year was only seven months. Interest expense increased by
$9,724, from $1,403 in fiscal 1998 to$11,127 in fiscal 1999, due to the need for
short term financing. We charged amortization of $17,862 in fiscal 1999 compared
to $4,803 in 1998. We experienced a net loss of $90,304 for fiscal 1999 compared
to a net profit of $3,754 for fiscal 1998.
Item 5B
Liquidity and capital resources
Twelve Months ended March 31, 2002
Cash used in operating activities was $633,978 (403,936) for the twelve months
ended March 31, 2002, primarily attributable to a net loss of $ 1,035,308
(659,641). Cash provided by financing activities in the twelve months ended
March 31, 2002 was $619,507 (388,041) consisting of $64,153 (40,184) increase in
advances from shareholders, increase in convertible note of $125,144 (79,735)
and an increase in capital stock of $ 195,600 (122,518), offset by decrease in
loans payable of $76,522 (47,931).
Cash used in investing activities for the twelve months ended March 31, 2002 was
$9,527 (5,967).
Six Months ended September 30, 2001
Cash used in operating activities was $615,552 ($389,203) for the six months
ended September 30, 2001, attributable to a net loss of $378,070 ($239,436), an
overall decrease in prepaid expense and sundry receivables of $23,807 ($15,078),
decrease in accounts payable and accrued liabilities of $73,002 ($46,236),
increase in deferred revenue of $48,566 ($30,759).
Cash provided by financing activities in the six months ended September 30, 2001
was $598,971 ($379,336) consisting of $86,364 ($54,699) increase in advances
from shareholders, increase in loans payable of $10,139 ($6,422) and an
increase in issuance of capital stock of $401,000 ($253,958), increase in
convertible note of $101,469 (64,266).
Cash used in investing activities for the six months ended September 30, 2001
was $7,039 ($4,458).
Twelve months ended March 31, 2001
Cash used in operating activities was $472,170 ($299,277) for the twelve months
ended March 31, 2001, primarily attributable to a net loss of $889,055
($593,815) and an increase in prepaid expenses and sundry receivables $28,357
($25,555), partially offset by a decrease in accounts receivable of $78,665
($57,015) and an increase in accounts payable and accrued liabilities of
$299,339 ($180,587), and a decrease in deferred revenue of $30,714 ($21,763).
Cash used in operating activities for the seven months in 2000 was $355,456
($232,060), primarily attributable to a loss of $433,692 ($296,963) and an
increase in accounts receivable.
Cash provided by financing activities in the twelve months ended March 31, 2001
was $517,497 ($344,855) consisting of $9,271 ($8,325) decrease in advances to
shareholders, increase in loans payable of $76,561($48,549), decrease in
advances from Jazz Monkey Media of $225,207 ($154,897), issue of capital stock
in the amount of $225,000 ($149,734)
8.
Cash used in investing activities for the twelve months ended March 31, 2001 was
$111,245 ($74,306) consisting primarily of computer hardware. Cash used in
investing activities for the seven months ended March 31, 2000 was $67,808
($46,639).
We believe that our cash and cash requirements as at March 31, 2002 of $8,793
($5,508) together with funds raised in recent financing activities and funds
excepted to be generated from operations and new projects, will be sufficient to
meet our cash requirements through March 31, 2003. There can be no assurance
that we will not require additional financing prior to that time.
Twelve Months ended March 31, 2002 Compared to Twelve Months ended March 31,
2001
Cash used in operating activities was $633,978 (403,936) for the twelve months
ended March 31, 2002, primarily attributable to a net loss of $ 1,035,308
(659,641). For the same period in 2001 cash used in operating activities was $
472,170 (315,390), attributable to a net loss of $ 889,056 (593,852). Cash
provided by financing activities in the twelve months ended March 31, 2002 was
$619,507 (388,041) consisting of $64,153 (40,184) increase in advances from
shareholders, increase in convertible note of $125,144 (79,735) and an increase
in capital stock of $ 195,600 (122,518), offset by decrease in loans payable of
$76,522 (47,931). For the twelve months ended March 31, 2001 cash provided by
financing activities were $517,497 (345,666) consisting of $ 76,561 (51,140)
increase in loans payable, offset by a decrease in capital stock of $407,931
(272,481).
Cash used in investing activities for the twelve months ended March 31, 2002 was
$9,527 (5,967), compared to $46,639 (31,153) for the same period ended March 31,
2001.
Seven Months ended March 31, 2000 Compared to the Twelve Months ended
August 31, 1999
Cash used in operating activities was $355,456 ($244,484) for the seven months
ended March 31, 2000,primarily attributable to a net loss of $433,692 ($298,296)
and an increase in accounts receivable of $60,415 ($41,554) partially offset by
an increase in accounts payable of $75,921 ($52,219) and an increase in deferred
revenue of $46,674 ($32,103). Cash generated from operating activities for the
same period in 1999 was $105,077 ($73,480) primarily attributable to net loss of
$135,718 ($94,908), partially offset by an increase in accounts receivable of
$53,171 ($37,183) and an increase in accounts payable of $57,174 ($39,325).
Cash provided by financing activities for the seven months ended March 31, 2000
totaled $499,469 ($343,537) consisting of $632,931 ($435,333) in net proceeds
from the issuance of common shares pursuant to a private placement, an advance
of $230,395 ($158,467) to Jazz Monkey Media Inc. at March 31, 2000. It was
repaid in full by December 31, 2000. Cash used in financing activities in the
twelve month period ended August 31, 1999 was $193,826 ($135,543) representing
an advance of $38,638 ($27,020) to shareholders and an issuance of capital stock
of $150,000 ($104,895).
Cash used in investing activities for the seven months ended March 31, 2000
was $46,639 ($32,079), attributable to the purchase of capital assets, primarily
computer hardware, in the amount of $125,297 ($86,180). Cash used in investing
activities for the twelve month period ended August 31, 1999 was $90,929
($63,587), attributable to the purchase of capital assets, primarily computer
hardware, in the amount of $108,253 ($75,701).
Year ended August 31, 1999 Compared to Year ended August 31, 1998
Cash used in operating activities was $105,077 ($73,480) in the year ended
August 31, 1999, attributable primarily to a net loss of $135,718 ($94,908) and
an increase in accounts receivable of $53,171 ($37,537), partially offset by an
increase in accounts payable of $57,174 ($39,325). Cash from operating
activities in the year ended August 31, 1998 was $53,939($23,944) attributable
9.
primarily to net income of $4,973 ($3,754) and an increase in accounts payable
of $35,571 ($24,828), partially offset by an increase in prepaid expenses of
$3,574 ($2,495) and an increase in accounts receivable of $9,070 ($6,331).
We have capital equipment commitment for new computers in the aggregate amount
of $48,543, pursuant to a 36-month lease that began in May 26, 2001. The lease
has a payout of $ 3,843.60. Payments under this lease will be funded from
working capital.
We continually monitor developments in the adult entertainment market and
redevelop our strategic plan and products, and upgrade technology. However, we
do not have formal research and development policies or a research and
development budget and have not to date tracked funds spent on research and
development. There can be no assurance that we will have sufficient resources
to implement new products and technology could have a material adverse effect on
our competitive position and our continued viability.
Cash provided by financing activities in the twelve months ended March 31, 2001
was $344,855 ($517,497) consisting of $8,325 ($9,271) decrease in advances to
shareholders, increase in loans payable of $ 48,549 (76,561), decrease in
advances from Jazz Monkey Media of $154,897 ($225,207), issue of capital stock
in the amount of $225,000 ($149,734).
Item 6 A & C. Directors, Senior Management and Employees
Each of the three directors was re-elected at the Corporation' s Annual a
General Meeting of Shareholders held on November 23, 2001. They will hold
office until the next Annual General Meeting or until there successors are
elected. We do not maintain insurance for the benefit of our directors and
officers against liabilities incurred by them in their capacity as directors or
officers. We do not maintain key man life insurance. There is no family
relationship between or among any of our directors and executive officers. None
of our directors has a contract with us providing for benefits upon termination
of his position as a director.
The following discusses the business experience, history and functions of our
directors and senior officers.
Sean HusVar, 32, has been a director since December 1999. He is an independent
Director and a member of our Corporate Governance Committee. Mr. HusVar is
currently the CEO of TagFX a digital printing and marketing solutions company.
Mr. HusVar is a co-founder of Chek, Inc. now CKMP, Inc., a provider of business
and consumer e-mail outsourcing solutions. From 1995 until 2000 he was Chairman
and CEO of EdgeNEt, Inc. a web design and hosting firm that was acquired by
Choice One Communications (Nasdaq: CWON) in January of 2000.
Wayne Doss, 48, is an independent management consultant, formerly President &
Chief Executive Officer of Keller Ladders, Inc. and Biltbest of California, Inc.
(formerly Keller Industries, Inc.) from 1993 to December 31, 1999.
John A. van Arem, 44, became the President, Director and Chairman of the Board
of the Corporation in December 1999. He has been the President of Web Dream,
Inc. since February 1998. Mr. van Arem is responsible for overall management of
the Corporation and its subsidiaries. From 1992 to the present, Mr. van Arem has
been operating the adult entertainment business that was incorporated as Web
Dream Inc. in 1998. From 1986 to 1992, Mr. van Arem owned and operated a
successful framing contracting company in Ontario, Canada. Mr. van Arem also has
an ownership interest in and operates a private company, Jazz Monkey Media Inc.
that provides web-marketing solutions for clients.
10.
Anthony Korculanic, 35, is our Operations Manager, responsible for public
and investor relations, office management and human resources. From January to
May 2000, he was our Executive Vice President and Secretary. While Mr.
Korculanic is no longer an executive officer, he is a key person. Mr. Korculanic
received an architectural diploma in 1988 and served as CAD Manager for Brisbin
Brook Beynon Architects from 1988 to 1992. From 1992 to the present, Mr.
Korculanic has been operating the adult entertainment business that was
incorporated as Web Dream Inc. in 1998. Mr. Korculanic also has an ownership
interest in and operates a private company, Jazz Monkey Media Inc. that provides
Web-marketing solutions for clients. On July 9, 1999 Mr. Korculanic pleaded
guilty under a plea agreement dated January 7, 1999 to one count of carrying
lottery materials in inter state or foreign commerce contrary to 18 U.S.C.
Sec.Sec.1301 and 2. The offense was committed by affiliation as Sales
Manager at Intertel Marketing on March 9, 1995. The court ordered three years
probation and imposed a fine in the amount of U.S. $30,000. No jail or prison
sentence was imposed.
Our Corporate Governance Committee performs an independent supervisory rollover
the management of the Corporation in accordance with its statutory obligations
and the role of an audit committee. We have no other committees of the board of
directors. Our Corporate Governance Policy requires that 2/3 of our Directors
be independent of management and free of any business or other relationship that
could materially interfere with the independent discharge of their duties. The
Directors and management are responsible for considering new appointees for
recommendation to the shareholders. The Board is charged with managing our
affairs with delegation of day-to-day activities to our President. The Board is
responsible for overseeing approval of our financial statements, business plans,
major capital expenditures, raising capital and other major financial
activities, executive hiring, compensation, assessment and succession, granting
of stock options, decisions to devote resources to new lines of business,
organizational restructurings, acquisitions and divestitures. All directors are
required to declare their interests in transactions or matters affecting the
Corporation and refrain from voting with respect to such matters.
6B. COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Our directors do not receive any cash compensation from the Corporation for
acting as directors. They receive stock options periodically as determined by
the board and senior management, but there is no formal policy regarding such
grants. All such grants are subject to the terms of our stock option plan,
discussed under "Employees" below. In February 2000, Sean Husvar, was granted an
option to purchase 100,000 of our common shares at the exercise price of
CDN$0.25. 50% of these options vest and were exercisable after February 18, 2001
and the remaining 50% vest and were exercisable after February 18, 2002. The
options expire on February 18, 2003.
The following table and notes show the compensation paid by us to John
Alexander van Arem and to Anthony Korculanic for the last fiscal year.
Name Year Salary Other Long-Term Compensation
Annual Stock Option Grants
Compen No. of Exercise Vesting period Expiry Date
sation Common Price
Shares (CDN$)
for which
option
granted
- ----------- ---- ---------- --------- ---------- --------- --------------- -----------
John A. 2002 $110,000(1) $10,800(2) 240,000 $0.25 50% Feb. 18/01 Feb. 18/03
van Arem 50% Feb. 18/02
Anthony 2002 $ 93,600(3) $7,200(4) 200,000 $0.25 50% Feb. 18/01; Feb. 18/03
Korculanic 50% Feb. 18/02
11.
<FN>
(1) Mr. van Arem also received in fiscal year 2001 a payment of $20,500
relating to compensation deferred in our fiscal year ended March 31,2000. In our
fiscal year 2002, Mr. van Arem's total salary for twelve months was $110,000, of
which $88,400 was paid to him. Payment of the remaining amount of $21,600 was
deferred due to a management decision to forgo compensation for the benefit of
the Corporation. This deferred amount was included as a shareholder loan on our
balance sheet for the year ended March 31, 2002. This loan was repaid without
interest in June 2002.
(2) Represents a monthly car allowance of $900.
(3) Mr. Korculanic also received in fiscal year 2001 a payment of $22,087
relating to compensation deferred in our fiscal year ended March 31,2000. In our
fiscal year 2002, Mr. Korculanic's total salary for twelve months was $93,600,
of which $75,600 was paid to him. Payment of the remaining amount of $18,000 was
deferred due to a management decision to forgo compensation for the benefit of
the Corporation. This deferred amount was included as a shareholder loan on our
balance sheet for the year ended March 31, 2002. This loan was repaid without
interest in June 2002.
(4) Represents a monthly car allowance of $600.
We have a three-year employment agreement with our President John van Arem that
extends through March 31, 2003. The agreement provides for an annual base
salary of $110,000, plus a CDN$900 per month car allowance. Any performance
bonus and stock option grants are at the discretion of the board of directors.
Mr. van Arem also participates in all benefit plans maintained by us for
salaried employees. Mr. van Arem's agreement contains confidentiality and
non-compete provisions. We have a three-year employment agreement with Anthony
Korculanic that extends through March 31, 2003. The agreement provides for an
annual base salary of CDN$93,600 annually, plus a CDN$600 per month car
allowance. Any performance bonus and stock option grants are at the discretion
of the board of directors. Mr. Korculanic also participates in all benefit
plans maintained by us for salaried employees. Mr. Korculanic 's agreement
contains confidentiality and non-compete provisions.
6E. SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT
The following table shows the share ownership of Directors and Senior Management
as of August 31, 2002.
NAME NUMBER OF SHARES PERCENTAGE OF
OWNED OUTSTANDING SHARES
John A. van Arem 8,347,000 (1)(2) 16%
Anthony Korculanic 7,227,000 (1)(3) 14%
Sean Husvar 50,000(4) .001%
(1) These shares do not carry any voting or other rights that are different
from the rights attaching to the Corporation's common shares, which are
summarized in Item 9 "The Offer and Listing".
(2) The number of shares owned includes 120,000 options to purchase common
shares that are immediately exercisable at the price of CDN$0.25. An additional
120,000 options vest and were exercisable after February 18, 2002 at the price
of CDN$0.25. These 240,000 options were granted on February 18, 2000 and expire
on February 18, 2003.
(3) The number of shares owned includes 100,000 options to purchase common
shares that are immediately exercisable at the price of CDN$0.25. An additional
100,000 options vest and were exercisable after February 18, 2002 at the price
of CDN$0.25. These 200,000 options were granted on February 18, 2000 and expire
on February 18, 2003
12.
(4) The number of shares owned includes 50,000 options to purchase common
shares that are immediately exercisable at the price of CDN$0.25. An additional
50,000 options to purchase common shares at the price of CDN$0.25 vest and were
exercisable after February 18, 2002. These 100,000 options were granted on
February 18, 2000 and expire on February 18, 2003
(5) The number of shares owned includes 50,000 options to purchase common
shares at the price of CDN$0.25 that are immediately exercisable. An additional
50,000 options to purchase common shares at the price of CDN$0.25 vest and were
exercisable after February 18, 2002. These 100,000 options were granted on
February 18, 2000 and expire on February 18, 2003
6D. EMPLOYEES
As of August 31, 2002, we had 10 full-time employees, 1 part-time employee
including senior management, compared to 14 at December 14, 2001. This
reduction is attributable to management's decision to reduce overhead. All of
our full-time employees are located in Toronto and occupy management or
administrative positions. None of our employees are covered by a collective
bargaining agreement, and we believe that our relationship with our employees is
good. Our future success, however, will depend upon our ability to attract and
retain qualified personnel. Competition for technical personnel required in our
business in particular is often intense, and there can be no assurance that we
will be able to attract and retain adequate numbers of qualified personnel in
the future.
Our share option plan (the "Plan") was established in 1997 for the purpose of
attracting and retaining highly qualified personnel by providing incentives in
the form of stock options. Under the Plan incentive share options for up to a
specified limit of 3,000,000 common shares may be granted from time to time by
the board of directors to our directors, officers, employees and consultants,
and to the directors, officers, employees and consultants of our subsidiaries.
Options granted under the Plan will have an exercise price equal to the market
price of the common shares on the day preceding the day of the grant as
determined by our board of directors, where the market price is the closing
price (or the closing bid and asked prices, as applicable) on the exchange or
market where the shares are listed or quoted as selected by the board of
directors, and will be exercisable over the period determined by the board of
directors. Unvested options granted under the Plan will immediately become fully
vested and exercisable upon the occurrence of any one of the following four
events:
- The acquisition of more than 50% of the beneficial ownership of our
outstanding voting securities; a consolidation or merger with another
company where our shareholders do not have the same proportionate ownership
in the surviving entity that they had prior to the merger, and we are
either (i) Not the continuing or surviving corporation, or (ii) our shares
are converted into cash, securities or other property;
- the sale, lease, exchange or other transfer of all or substantially all
of our assets; and
- our shareholders approve a plan of liquidation or dissolution.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
We are a publicly owned Canadian corporation. Another corporation, or any
government does not control us directly or indirectly.
7A. MAJOR SHAREHOLDERS
The following table shows the ownership of our common shares as of
September 6, 2002 of each person known to us to be the beneficial owner of more
than 5% of our outstanding common shares.
NAME NUMBER OF SHARES PERCENTAGE OF
OWNED OUTSTANDING
SHARES
John A. van Arem 8,347,000(1)(2) 16%
Anthony Korculanic 7,227,000(1)(3) 14%
13.
(1) These shares do not carry any voting or other rights that are different
from the rights attaching to our common shares, which are summarized in Item 9
"The Listing".
(2) The number of shares owned includes 120,000 options to purchase common
shares that are immediately exercisable at the price of CDN$0.25. An additional
120,000 options vest and were exercisable after February 18, 2002 at the price
of CDN$0.25. These 240,000 options were granted on February 18, 2000 and expire
on February 18, 2003.
(3) The number of shares owned includes 100,000 options to purchase common
shares that are immediately exercisable at the price of CDN$0.25. An additional
100,000 options vest and were exercisable after February 18, 2002 at the price
of CDN$0.25. These 200,000 options were granted on February 18, 2000 and expire
on February 18, 2003.
7B. RELATED PARTY TRANSACTIONS
In the years 1998 and 1999, before the reverse takeover, Web Dream entered
into routine business transactions with Jazz Monkey Media Inc. a company
controlled by John van Arem and Anthony Korculanic. These transactions were in
the normal course of business and at market prices. At the present time, Jazz
Monkey Media Inc. provides us with bandwidth it has obtained from a third party.
Jazz Monkey Media Inc. Invoices us for their net cost of these services.
We owed Mr. van Arem and Mr. Korculanic an aggregate of $109,725 at March
31, 2002. This amount has increased from $ 36,300 as of March 30, 2001 and
this amount is unsecured, bears no interest and has no fixed term of repayment.
(See note 9 to our financial statements beginning at page F-1 of this
registration statement.)
Management of the Corporation is not aware of any material interest, direct
or indirect, of any director, officer or any associate or affiliate of any of
the foregoing persons, in any matter to be acted upon. There may develop
potential conflicts of interest to which the proposed directors and officers of
the Corporation may be subject in connection with the operations of the
Corporation. Conflicts, if any will be subject to the procedures and remedies
under the Business Corporations Act (Ontario). See "Item 10B Memorandum and
Articles of Association - Bylaws; Director's Conflicts."
ITEM 8. FINANCIAL INFORMATION
8A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
The financial statements required herein are set forth beginning on page
F-1 of this registration statement.
DIVIDEND POLICY
We did not pay any cash or other dividends on our common shares in the last
fiscal period and the Board of Directors does not contemplate doing so in the
foreseeable future. We believe that it is in the best interests of the
Corporation and its shareholders to retain all earnings to fund operations and
growth.
14.
LEGAL PROCEEDINGS
There is currently one material claims pending against us. If we lose
either of these suits or enter into settlements requiring us to pay cash, our
liquidity and financial position could be adversely affected over the short
term.
In October 1997, the Company's wholly owned subsidiary, Pizay Investments
Inc. ("Pizay") entered into an agreement with ProAm Explorations Corporation
("ProAm") under which ProAm granted to Pizay an exclusive option to acquire an
undivided 10% interest in certain property. The consideration to earn this 10%
interest included a non-interest bearing demand note payable in the amount of
CDN$90,000. This agreement was terminated in 1999. ProAm Explorations
Corporation in the Supreme Court of British Columbia, Court File No, has named
us as a defendant in a lawsuit, C992400, Vancouver Registry. This lawsuit
claims damages in the amount of CDN$90,000 plus interest and costs for
non-payment of the outstanding demand note. ProAm bases the claim against us on
an alleged verbal guarantee of the note payable by ProAm. We have filed a
statement of defense denying the allegations in the claim. The outcome cannot be
determined at this time but management believes that the results will not have a
material adverse effect on our business.
8B. SIGNIFICANT CHANGES
Since the close of our year ended March 31, 2002, we have raised $208,350 U.S.
in capital through financing activities. See Item 10 "Additional Information,
Recent Sales of the Corporation's Securities".
ITEM 9. THE LISTING
COMMON SHARES
Each of our Common Shares carries one vote at all meetings of shareholders,
is entitled to dividends as and when declared by our Board of Directors and is
entitled upon liquidation, dissolution or winding-up to a pro rata share of the
assets distributable to holders of common shares. Our common shares carry no
conversion or pre-emptive rights. We have no other classes of shares. Pursuant
to section 23 (1) of the Business Corporations Act (R.S.O. 1990, c. B. 16),
which is our governing corporate legislation, our articles allow us to issue an
unlimited number of common shares at such time and to such persons and for such
consideration as the directors may determine. However, in certain circumstances
the Ontario Securities Act and the rules and policies of the Ontario Securities
Commission may require that we obtain shareholder approval to issue shares
At our 2001 Annual Special Meeting of Shareholders, the shareholders passed a
resolution authorizing our directors to cause us to issue up to 30,000,000
common shares or 30,000,000 units consisting of one common share and one warrant
through one or more private placement financing transactions. Any such
transactions must be entered into before September 2002 at the market price at
the time of the transaction less any discounts as approved by our directors. Any
other financing activities that are proposed and require shareholder approval
will be put forth to the shareholders in accordance with applicant legislative
or regulatory requirements. We are only authorized to enter into such a private
placement if funds are required to continue or expand or activities and the
subscription price is reasonable in the circumstances. This resolution was
obtained to obviate any need for shareholder approvals of a private placement
that may be required by a securities regulatory authority and thereby reduce the
time required to complete a financing. Any financing that is not in accordance
with the terms of the shareholder's resolution may require shareholder approval
pursuant to the rules and policies of the Ontario Securities Commission.
15.
TRANSFER AGENT
Our common shares are issued in registered form. Heritage Trust Company
located in Toronto, Ontario, Canada, is the registrar and transfer agent for our
common shares.
TRADING MARKET
Our common shares trade "over-the-counter" on the Canadian Unlisted Board
("CUB") with the trading symbol "ROOS" (formerly "SMRL") and CUSIP #25388G-10-3.
The CUB system was implemented in November 2000. It is only available to
traders and brokers for reporting trades that they have arranged in unlisted and
unquoted equity securities in Ontario. No real-time quotes or trades are
available to the public.
Prior to November 2000, our common shares traded on the Canadian Dealing
Network (CDN). The following table lists the reported high, low, closing prices
and the aggregate quarterly trading volumes on CDN for our common shares for the
eight fiscal quarters from December 31, 1998 to September 30, 2000.
CANADIAN DEALING NETWORK TRADING ACTIVITY
SALES (IN CANADIAN DOLLARS)
Period High Low Trading Volume
January 1 through March 15, 2001 * * *
Quarter ended December 31, 2000 $ 0.35 $ 0.25 11,111
Quarter ended September 30, 2000 $ 1.00 $ 0.40 271,054
Quarter ended June 30, 2000 $ 1.00 $ 0.40 20,698
Quarter ended March 31, 2000 $ 0.75 $ 0.50 22,640
Quarter ended December 31, 1999 $ 0.09 $ 0.01 **
Quarter ended September 30, 1999 $ 0.09 $ 0.01 5,133,722
Quarter ended June 30, 1999 $ 0.07 $ 0.01 1,282,167
Quarter ended March 31, 1999 $0.015 $0.015 287,723
Quarter ended December 31, 1998 $ 0.08 $ 0.01 419,000
*Since the formation of CUB, there is no record of quotations. On several
occasions in March 2001 we were advised by brokers trading in our common shares
that they were being offered at CDN$0.25. We are unable to conclusively
determine whether any trading occurred or the price of any trades.
**There were no trades reported during this period.
There can be no assurance that an active trading market for our common
shares will develop or be sustained.
On April 5, 2002 the Corporation was cleared for trading on the NASD OTC BB
under the symbol DGROF. We were cleared to submit a quote for $0.10 Bid to $
0.30.
16.
Item 10B
MEMORANDUM AND ARTICLES OF ASSOCIATION
Incorporation: Originally a federally incorporated company, we were
continued Incorporation: Originally a federally incorporated company, we were
continued as an Ontario corporation under the Business Corporations Act
(Ontario) by Articles of Continuance dated October 30, 1998. We filed Articles
of Amalgamation under the name Storimin Resources Limited on April 1,
1999,Ontario Corporation number 1348061. By Articles of Amendment filed January
19,2000, we changed our name from Storimin Resources Limited to Digital
Rooster.com Inc Our Ontario corporation number is 1348061. The Articles of
Amalgamation provide in section 6 that there are no restrictions on the business
that we may carry on or on the powers that we may exercise. These provisions of
our Articles of Amalgamation have not been amended or revoked.
Bylaws: Our bylaws explain the way our corporate affairs are to be
conducted. A copy of our bylaws is attached as Exhibit 2.1 to this registration
statement. As provided for in the legislation that governs us, a bylaw can be
made, amended or repealed at any time by our directors. If the directors make,
amend or repeal a bylaw, the bylaw, amendment or repeal must be submitted to our
shareholders at the next shareholder meeting. Our shareholders may confirm,
reject or amend the bylaw, amendment or repeal. (R.S.O. 1990, c. B.16, s.
116(2)). A shareholder may propose to make, amend or repeal a bylaw. Such a
proposal must be submitted to our shareholders for adoption at the next
shareholder meeting.
Borrowing powers: Our borrowing powers are authorized by section 2.05 and
section 3.01 of our bylaws. The financial institutions with which our banking
business is to be conducted are to be determined by our board of directors orany
committee or person designated by our board of directors to make such
determination (section 2.05). Our board of directors, or any committee or
person designated by our board of directors, is authorized to borrow money,
issue, reissue, sell or pledge bonds, debentures, notes or other evidences of
indebtedness on our behalf. Our board of directors, or any committee or person
designated by our board of directors, is also authorized to secure or guarantee
on our behalf the performance of any present or future indebtedness, liability
or obligation of any person. The board of directors is authorized to exercise
the borrowing powers described above without obtaining authorization from our
shareholders.
Director's Appointment and Quorum: A quorum for the transaction of business
at any meeting of the board of directors is set in section 4.01 of our bylaws to
be at least a majority of the directors. The board of directors can determine
that a quorum shall be more than a majority. Our directors are not required to
hold any of our common shares. Section 404 of our bylaws provides that our
shareholders may by resolution passed at a meeting specially called for such
purpose remove any director from office and fill the vacancy created by such
removal.
Director's Conflicts: Section 4.18 of our bylaws governs conflicts of
interest involving our directors. That section provides that a director or
officer who is a party to, or who is a director or officer of, or has a material
interest in any person who is a party to, a material contract or proposed
material contract with the Corporation, shall disclose the nature and extent of
his interest at the time and in the manner provided by the Business Corporations
Act (Ontario). The relevant provisions of that Act as of the date of this
registration statement provide that a director or officer of a corporation who
(a) is a party to a material contract or transaction or proposed material
contract or transaction with the corporation, or (b) is a director or an officer
of, or has a material interest in, any person who is a party to a material
contract or transaction or proposed material contract or transaction with the
corporation, shall disclose in writing to the corporation or request to have
entered in the minutes of meetings of directors the nature and extent of his
other interest. (R.S.O. 1990, c. B.16, s. 132 (1).) Any such contract or
proposed contract may be referred to the board or shareholders for approval even
if such contract is one that in the ordinary course of the Corporation's
business would not require approval by the board or shareholders. Such a
director shall not vote on any resolution to approve the same except as provided
by the Act.
Section 4.19 of our bylaws provides that subject to any unanimous shareholder
agreement, the directors shall be paid such remuneration for their services and
reimbursed for expenses properly incurred as the board may from time to time
determine. Directors are not precluded from serving us in any other capacity and
receiving remuneration therefore
17.
Director's Indemnity: Section 7 of our bylaws set forth certain protections
for our directors and officers. Section 7.01 provides that no director or
officer shall be held liable for any losses or liabilities provided that in
exercising his powers and discharging his duties he acts honestly and in good
faith with a view to our best interests and exercises the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. These provisions of our bylaws do not relieve any director or
officer from the duty to act in accordance with the Act and the regulations
there under or from liability for breach of such laws.
Shareholder's Meetings: Our board of directors, our chairman of the board
or our president are responsible for setting the date and place for the annual
general meeting of shareholders, which by law must be held no later than fifteen
months after the last annual meeting. The purpose of the annual meeting is to
consider our financial statements and reports, elect directors, appoint an
auditor and transact any other business (section 8.01). Section 8.02 of our
bylaws provides that our board, our chairman of the board, or our president has
the power to call a special meeting of shareholders at any time.
Section 8.04 of our bylaws specifies the requirements for calling a
shareholder meeting. That section requires that notice of the time and place of
each meeting of shareholders shall be given not less than 21 nor more than
50days before the date of the meeting to each director, to our auditor and to
each shareholder who at the close of business on the record date for notice is
entered in the securities register as the holder of one or more shares carrying
the right to vote at the meeting. Notice of a meeting of shareholders called for
any purpose other than consideration of the financial statements and auditor's
report, election of directors, and reappointment of the incumbent auditor must
state the nature of such business in sufficient detail to permit the shareholder
to form a reasoned judgment thereon and shall state the text of any special
resolution to be submitted to the meeting.
We are required by section 8.05 of our bylaws to prepare a list of shareholders
entitled to receive notice of a meeting, arranged in alphabetical order and
showing the number of shares held by each shareholder entitled to vote at the
meeting. If a record date for the meeting is fixed, the shareholders listed are
those registered at the close of business on the record date. If no record date
is fixed, the shareholders listed are those registered at the close of business
on the day immediately preceding the day on which notice of the meeting is given
or, where no such notice is given, on the day on which the meeting is held. The
list is to be made available for examination by any shareholder during usual
business hours at our registered office or at the place where our central
securities register is maintained and at the meeting. Where a separate list of
shareholders has not been prepared, the names of persons appearing in the
securities register at the requisite time as the holder of one or more shares
carrying the right to vote at such meeting will be deemed to be a list of
shareholders.
Section 8.06 of our bylaws sets out the requirements for setting a record
date. Our directors are not required to set a record date, but if they do, the
record date must not precede the date of the shareholder's meeting by more than
50daysory less than 21 days. If our board does not fix a record date, the
record date for the determination of the shareholders entitled to receive notice
of a meeting shall be at the close of business on the day immediately preceding
the day on which the notice is given, or if no notice is given, the day of which
the meeting is held.
A shareholder meeting may be held without notice if the requirements
setouts in section 8.07 of our bylaws are met. These are requirements that must
be met are: (a) all the shareholders entitled to vote at the meeting are
presenting person or represented, or if those not present or represented waive
notice have Or otherwise consent to the meeting, and (b) our auditors are
present or waive Notice have or otherwise consent to the meeting. The meeting
can only proceed without notice having been given if the shareholders, auditors
or directors Present are not attending for the express purpose of objecting to
the Transaction of any business on the grounds that the meeting is not lawfully
called.
18.
Section 8.10 of our bylaws states that the quorum required in order to conduct
business at a shareholder's meeting two individuals present in person, each of
whom is a shareholder or proxy holder entitled to vote at the meeting.
Section 8.11 of our bylaws provides that every person named in the shareholder
list is entitled to vote the number of shares shown on the list opposite their
name. Every question to be decided at a shareholders meeting shall, unless
otherwise required by law, be determined by a majority of the votes cast on the
question (section 8.15).
Section 8.12 of our bylaws governs the rights of a shareholder to appoint a
proxy holder or representative to attend a shareholder meeting and vote at that
meeting on the shareholder's behalf. A proxy must be in writing and signed by
the shareholder or his or her attorney. Where a shareholder is a corporation or
association, it may authorize an individual to represent it at a shareholder
meeting. The authority of such an individual must be given by a resolution of
the corporation or shareholder and deposited with us.
Section 8.18 of our bylaws allows the chairman at a shareholders meeting to
adjourn the meeting provided that the shareholders consent to the adjournment.
If a shareholder meeting is adjourned for less than 30 days, notice of the
adjourned meeting does not have to be given. If a shareholder meeting is
adjourned by one or more adjournments for a total of 30 days or more, then
notice of the adjourned meeting must be given as required for an original
meeting.
Item 10D
EXCHANGE CONTROLS
The federal Investment Canada Act (the "ICA"), which became effective on
June 30, 1985, regulates the acquisition by non-Canadians of control of a
Canadian Business (as defined in the ICA). Such an acquisition is either
modifiable or review able depending on its structure and the value of the assets
of the Canadian business being acquired. In effect, the ICA requires review by
Investment Canada, the agency which administers the ICA, and approval by the
Canadian government in the case of an acquisition of control of a Canadian
business by a non-Canadian that is a WTO Investor (as defined in the ICA) where:
(i) In the case of a direct acquisition of control of a Canadian entity (i.e.,
through a share purchase), the assets of the entity carrying on the
Canadian Business and of all other entities in Canada, the control of which
is acquired exceeds CDN $209 million (this threshold is adjusted annually
for inflation and growth in Canada's domestic product); or (ii) in the case
of a direct acquisition of assets of a Canadian Business (i.e., through an
asset acquisition) the value of the assets used in carrying on the Canadian
business exceeds CDN $209 million. Where an investor is not a WTO Investor,
review is required where: (i) in the case of a direct acquisition of
control of a Canadian Business, the value of the assets of the business and
all other entities being acquired is CDN $5 million or more; or (ii) in the
case of an indirect acquisition of control of a Canadian Business, where
the Canadian Business has assets of CDN $50 million or more in value; or
(iii) in the case of an acquisition of assets of a Canadian Business, the
assets represents more than50% of the assets of the original group and the
value of the acquired assets exceeds CDN $5 million.
In the context of the Corporation three methods of acquiring control of a
Canadian business are regulated by the ICA: (i) the acquisition of all or
substantially all of the assets used in carrying on the Canadian business; (ii)
the acquisition, directly or indirectly, of voting shares of a Canadian
corporation carrying on the Canadian business; (iii) the acquisition of voting
shares of an entity which controls, directly or indirectly, another entity
carrying on a Canadian business. An acquisition of a majority of the voting
interests of an entity, including a corporation, is deemed to be an acquisition
of control under the ICA. An acquisition of less than one-third of the voting
shares of a corporation is deemed not to be an acquisition of control. An
acquisition of less than a majority, but one-third or more, of the voting shares
of a corporation is presumed to be an acquisition of control unless it can be
established that on the acquisition the corporation is not, in fact, controlled
by the acquirer through the ownership of voting shares. For partnerships,
trusts joint ventures or other unincorporated entities; an acquisition of less
than a majority of the voting interests is deemed not to be an acquisition of
control.
19.
10E. TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material Canadian federal income tax
considerations generally applicable in respect of the holding and disposition of
common shares reflects the Corporation's opinion. The tax consequences to any
particular holder of common shares will vary according to the status of that
holder as an individual, trust, corporation or member of a partnership, the
jurisdiction in which that holder is subject to taxation, the place where that
holder is resident and, generally, according to that holder's particular
circumstances.
This summary is applicable only to holders who are resident solely in the
United States, have never been resident in Canada, deal at arm's length with the
Corporation, hold their common shares as capital property and who will not use
or hold the common shares in carrying on business in Canada.
This summary is based upon the provisions of the Income Tax Act of Canada
and the regulations thereunder (collectively, the "Tax Act" or "ITA") and the
Canada-United States Tax Convention (the "Tax Convention") as at the date hereof
and the current administrative practices of Revenue Canada, Taxation. This
summary does not take into account provincial income tax consequences.
This summary is not exhaustive of all possible income tax consequences.
It's not intended as legal or tax advice to any particular holder of common
shares and should not be so construed. Each holder should consult his own tax
advisor with respect to the income tax consequences applicable to him in his own
particular circumstances.
Dividends
In the case of any dividends paid to non-residents, we withhold the
Canadian tax and pay only the net amount to the shareholder. The rate of
withholding tax is generally 25% but by virtue of Article X of the Tax
Convention, the rate of tax on dividends paid to persons who are residents only
of the United States for purposes of the Tax Convention is generally limited
to15% of the gross dividend (or 5% in the case of certain corporate shareholders
owning at least 10% of our voting shares).
Dispositions
A non-resident of Canada is not subject to tax under the ITA in respect of
a capital gain realized upon the disposition of a common share unless the share
is "taxable Canadian property" to the holder thereof and the non-resident is not
otherwise entitled to relief under a tax treaty. In the case of a non-resident
holder to whom our shares represent taxable Canadian property and who is
resident only in the United States for purposes of the Tax Convention, no tax
under the ITA will be payable on a capital gain realized on such shares by
reason of the Tax Convention unless the value of such shares is derived
principally from real property situated in Canada. We believe that the value of
our common shares is not derived from real property situated in Canada.
A common share of the Corporation will be taxable Canadian property to
anon-resident holder if, at any time during the period of five years immediately
preceding the disposition, the non-resident holder, persons with whom then
on-resident holder did not deal at arm's length, or the non-resident holder
together with persons with whom the holder did not deal at arm's length owned25%
20.
or more of the issued shares of any class or series of the Corporation. In
addition, a common share will be taxable Canadian property if the shares are not
listed on a prescribed stock exchange.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion that encompasses all of the material United
States Federal income tax consequences, under the law, generally applicable to a
U.S.Holder (as defined below) of our common shares. This discussion does not
address all potentially relevant Federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
Federal income tax law, such as, for example, tax-exempt organizations,
qualified retirement plans, persons subject to alternative minimum tax,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers, non-resident alien individuals
or foreign corporations whose ownership of common shares of the Corporation is
not effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their shares through the exercise of
employee share options or otherwise as compensation. In addition, this
discussion only applies to common shares held by U.S. Holders as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), and does not cover any state, local or foreign tax
consequences.
The following discussion is based upon the sections of the Code, Treasury
Regulations, published Internal Revenue Service ("IRS") rulings, published
administrative positions of the IRS and court decisions that are currently
applicable, any or all of which could be materially and adversely changed,
possibly on a retroactive basis, at any time. The following discussion is for
general information only and is not intended to be, nor should it be construed
to be, legal or tax advice to any holder or prospective holder of common shares
of the Corporation and no opinion or representation with respect to the United
States Federal income tax consequences to any such holder or prospective holder
is made. Accordingly, holders and prospective holders of common shares of the
Corporation should consult their own tax advisors about the federal, state;
local and foreign tax consequences of purchasing, owning and disposing of our
common shares.
U.S. Holders
As used herein, a ("U.S. Holder") includes a holder of our common shares
who is a citizen or resident of the United States, a partnership or corporation
organized under the laws of the United States, an estate, the income of which is
subject to United States federal income tax without regard to its source and a
trust if a United States court is able to exercise primary supervision over
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust or if the trust was
inexistence on August 20, 1996 and has elected to continue to be treated as
a United States person, and any other person or entity whose ownership of
our common shares is effectively connected with the conduct of a trade or
business in the United States.
Distributions on our Common Shares
U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to our common shares are required to include in gross
income for United States Federal income tax purposes the gross amount of such
distributions to the extent that we have current or accumulated earnings and
profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States Federal Income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States Federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below). To the extent that
distributions exceed our current or accumulated earnings and profits, they will
be treated first as a return of capital up to the U.S. Holder's adjusted basis
in the common shares and thereafter as gain from the sale or exchange of the
common shares. Preferential tax rates for long-term capital gains are applicable
to an U.S. Holder, which is an individual, estate or trust. There are currently
no preferential tax rates for long-term capital gains for an U.S. Holder, which
is a corporation. Dividends paid in Canadian dollars will be included in income
in an U.S. Dollar amount based on the exchange rate at the time of their
receipt. U.S. Holders should consult their own tax advisors regarding the
treatment of any foreign currency gain or loss on any Canadian dollars received
as a dividend, which are converted into U.S. dollars on a date subsequent to
receipt.
21.
Dividends paid on our common shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Corporation (unless we qualify as
a "foreign personal holding Corporation" or a "passive foreign investment
Corporation", as defined below) if such U.S. Holder owns shares representing at
least 10% of the voting power and value of the Corporation. The availability of
this deduction is subject to several complex limitations, which are beyond the
scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income
tax with respect to the ownership of our common shares may be entitled, at the
option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on an annual basis and applies to all
foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from)
the U.S. Holder during the year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holders United States income
tax liability that the U.S. Holder's foreign source income bears to his/her or
its worldwide taxable income.
In the determination of the application of this limitation, the various
items of income and deduction must be classified into foreign and domestic
sources. Complex rules govern this classification process. There are further
limitations on the foreign tax credit for certain types of income such as
passive income", "high withholding tax interest", "financial services income","
shipping income", and certain other classifications of income. In certain
circumstances, recently enacted legislation and other guidance issued by the
United States Treasury may deny a United States holder foreign tax credits (and
instead may allow deductions) for foreign taxes imposed on a dividend if the
United States holder (i) has not held the common shares for at least 16 days in
the 30-day period beginning 15 days before the ex-dividend date, during which it
is not protected from risk of loss; (ii) is obligated to make payments related
to the dividends; or (iii) holds the common shares in arrangements in which the
United States holder's expected economic profit, after non-US taxes, is
insubstantial.
The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific and holders and prospective holders
of common shares of the Corporation should consult their own tax advisors
regarding their individual circumstances.
Disposition of our Common Shares of the Corporation
A U.S. Holder will recognize gain or loss upon the sale of our common
shares equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received and (ii) the shareholder's tax basis
in our common shares. Any gain recognized on the sale or other disposition of
common shares will generally be U.S. source income. Any loss recognized on the
sale or other disposition of common shares will generally be U.S. source.
However, such loss will be foreign source to the extent certain dividends were
received by the U.S. Holder within the 24-month period preceding the date on
which the loss was recognized. This gain or loss will be capital gain or loss if
the common shares are capital asset in the hands of the U.S. Holder, which will
be a short-term or long-term capital gain or loss depending upon the holding
period of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders who are individuals, a capital loss is deductible
only to the extent of capital gains, plus ordinary income of up to U.S.
$3,000;any unused portion
22.
of such net capital loss may be carried over to be used in later tax years until
such net capital loss is thereby exhausted. For U.S.Holders that are
corporations (other than corporations subject to Subchapter of the Code), any
unused net capital loss may be carried back three years from the loss year and
carried forward five years from the loss year to be offset against capital gains
until such net capital loss is thereby exhausted. If the amount realized on a
sale or exchange is not denominated in U.S. dollars, the amount realized will be
equal to the U.S. dollar value thereof, determined at the spot rate on the date
of the sale or exchange.
Other Considerations
In the following two circumstances, the above sections of the discussion
may not describe the United States Federal income tax consequences resulting
from the holding and disposition of our common shares. Based on (a) the number
of shareholders of our common shares and (b) the majority ownership of our
shares by Canadian residents, we do not believe that it is either a" Foreign
Personal Holding Corporation" or a "Controlled Foreign Corporation."
10H. INSPECTION OF DOCUMENTS
Documents referred to in this registration statement may be inspected at
our executive offices at 366 Bay Street, 12th floor, Toronto, Ontario, M5H
4B2,during normal business hours.
ITEM 11: QUANTITATIVE AND QUALITATIVE ASSESSMENT OF MARKET RISK
EXCHANGE RATE SENSITIVITY
Substantially large amounts of our revenues are earned in United States
dollars, and expenses are incurred in Canadian dollars. Increases in the value
of the Canadian dollar relative to the United States dollar could adversely
affect our results of operations. We do not engage in any foreign currency
hedging policies. To the extent that we are not able to or do not raise our
prices to reflect an adverse change in exchange rates, our profitability would
be adversely affected. The impact of future exchange rates fluctuations on our
results of operations and financial condition cannot be accurately predicted.
Part III
Item 17. FINANCIAL STATEMENTS
Audited Financial Statements
Page
Digital Rooster.com Inc.
For the year ended March 31, 2002 and 2001
Auditors' Report F1
Financial Statements and Notes F2 - F15
23.
AUDITORS' REPORT
To the Directors of
Digital Rooster.com Inc.
We have audited the consolidated balance sheet of Digital Rooster.com Inc. as at
March 31, 2002 and 2001 and the consolidated statement of operations, deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 financial statements present fairly, in all material
respects, the financial position of the corporation as at March 31, 2002 and
2001 and the results of operations and its cash flows for the years then ended
in accordance with Canadian generally accepted accounting principles.
Toronto, Ontario /S/ MINTZ & PARTNERS LLP
August 13, 2002 CHARTERED ACCOUNTANTS
CANADA - U.S. REPORTING DIFFERENCES
(a) Going Concern Basis of Presentation
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financials statements are effected 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 financial
statements.
(b) Comments by Auditor
Our report to the directors dated August 13, 2002 is expressed in accordance
with Canadian reporting standards, which do not permit a reference to such
events and conditions in the auditor's report when these are adequately
disclosed in the financial statements.
Toronto, Ontario.
August 13, 2002
/S/ MINTZ & PARTNERS LLP
CHARTERED ACCOUNTANTS
24.
A S S E T S
-----------
CURRENT
Cash $ 8,793 $ 32,791
Accounts receivable 113,570 54,198
Prepaids and sundry receivables 16,904 58,517
------------ ------------
139,267 145,506
CAPITAL ASSETS (Note 4) 135,304 184,876
GOODWILL (Note 5) 190,501 258,739
------------ ------------
$ 465,072 $ 589,121
============ ============
L I A B I L I T I E S
---------------------
CURRENT
Accounts payable and accrued liabilities $ 607,996 $ 471,251
Income taxes payable 2,415 2,415
Deferred Revenue 170,967 15,961
Convertible Notes payable (Note 6) 125,144 -
Loans payable (Note 7) 76,900 76,561
------------ ------------
983,422 566,188
NOTE PAYABLE (Note 8) 90,000 90,000
DUE TO SHAREHOLDERS (Note 9) 109,725 36,300
------------ ------------
1,183,147 692,488
S H A R E H O L D E R S' DEFICIENCY
-----------------------------------
CAPITAL STOCK (Note 10) 1,770,726 1,350,126
DEFICIT (2,488,801) (1,453,493)
------------ ------------
(718,075) (103,367)
------------ ------------
$ 465,072 $ 589,121
============ ============
APPROVED ON BEHALF OF THE BOARD
________________________________
DEFICIT - beginning of year, as previously reported (Note 2) $(1,453,493) $ (485,555)
RESTATEMENT OF PRIOR YEAR - (78,882)
------------ ------------
DEFICIT - beginning of year (Note 2) $(1,453,493) $ (564,437)
Net loss (1,035,308) (889,056)
------------ ------------
DEFICIT - End of year $(2,488,801) $(1,453,493)
============ ============
25.
REVENUES (Note 11) $ 1,227,878 $ 2,508,122
COST OF SALES 348,525 737,562
------------ ------------
GROSS PROFIT 879,353 1,770,560
------------ ------------
EXPENSES
Administrative 1,369,681 1,318,372
Selling 61,059 770,512
Computer 300,205 439,071
Interest 56,378 11,755
Amortization of capital assets 59,099 51,667
Amortization of goodwill 68,239 68,239
------------ ------------
1,914,661 2,659,616
------------ ------------
NET LOSS $(1,035,308) $ (889,056)
============ ============
LOSS PER SHARE (Note 15)
Basic $ (0.03) $ (0.03)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 34,062,373 30,958,948
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,035,308) $ (889,056)
Adjustment for non-cash items:
Amortization of capital assets 59,099 51,667
Amortization of goodwill 68,239 68,239
------------ ------------
(907,970) (769,150)
Changes in non-cash balances related to operations (Note 16) 273,992 296,980
------------ ------------
CASH FLOWS USED IN OPERATING ACTIVITIES (633,978) (472,170)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (9,527) (111,245)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES (9,527) (111,245)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (to) shareholders 73,424 (9,271)
Convertible notes payable 125,144 -
Increase in loans payable 339 76,561
Advances from Jazz Monkey Media Inc. - 225,207
Issuance of capital stock 420,600 225,000
------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 619,507 517,497
------------ ------------
DECREASE IN CASH (23,998) (65,918)
CASH - Beginning of year 32,791 98,709
------------ ------------
CASH - End of year $ 8,793 $ 32,791
============ ============
26.
1. NATURE OF COMPANY'S OPERATIONS AND BASIS OF PRESENTATION
Digital Rooster.com Inc and its wholly owned subsidiaries Web Dream Inc. and
Bill Media Inc. ("the Group") derive their revenues from the license of video
content, monthly subscriptions to the website content and advertisements
displayed on its website and sale of customized software.
GOING CONCERN BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern that contemplates
the realization of assets and the payment of liabilities in the ordinary course
of business. Accordingly, they do not give effect to adjustments that would be
necessary should the company be unable to continue as a going concern. In other
than the normal course of business, the Company may be required to realize its
assets and liquidate its liabilities and commitments at amounts different from
those in the accompanying financial statements. Because of the operating losses
of the past three years and the working capital deficiency as at March 31, 2002,
the Company's continuance as a going concern is dependent upon its ability to
obtain adequate financing or to reach profitable levels of operation. It is not
possible to predict whether financing efforts will be successful or if the
company will attain profitable levels of operations.
RESTATEMENT OF 2000 DEFICIT
Change in accounting policy
During 2001, the company changed the revenue recognition policy retroactively.
The company adopted a revenue recognition policy, which is in accordance with
American Institute of Certified Public Accountant's Statement of Position 97 - 2
(SOP 97 - 2) and as commented in Staff Accounting Bulletin 101 issued by the
United States Securities and Exchange Commission (SAB 101). Accordingly, monthly
subscription fees to the company's website are recognized as the services are
provided and revenue from wholesale customers is recognized as the services are
provided under the terms of the contract. As a result, revenue and accounts
receivable in the audited financial statements for the year ended March 31, 2000
have been decreased by $46,675.
Correction of an error
In 2001, an error was discovered whereby accounts payable of $32,207 were
excluded from the previously issued and audited prior year financial statements.
To correct the error, computer expenses increased by $32,207 and accounts
payable were increased by $32,207 for the year ended March 31, 2000.
As a result of these changes, applied retroactively, the previously recorded
deficit as at March 31, 2000 was increased by $ 78,882. Accordingly, the
opening deficit in fiscal 2001 was increased by $ 78,882 from $485,565 to $
564,437.
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of presentation
These consolidated financial statements have been prepared in accordance with
Canadian Generally Accepted Accounting Principles. Significant differences
between Canadian Generally Accepted Accounting Principles and United States
Generally Accepted Accounting Principles, as they relate to these consolidated
financial statements, are explained in Note 20.
27.
Use of estimates
The preparation of these consolidated financial statements, in conformity with
Canadian Generally Accepted Accounting Principles, has required management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities as at March 31, 2002 and
March 31, 2001 and the revenue and expenses reported for the years then ended.
Actual results may differ from those estimates.
Revenue recognition
Revenue from monthly subscriptions to the website is deferred upon receipt of
payment and is recognized as revenue as the services are provided.
Revenue from the license of video contents and access to the Company's website
to wholesale customers is recognized as the services are provided under the
terms of the contract.
Revenue from advertisements on the website of the Company is recognized when all
the significant obligations have been completed, the fees are fixed and
determinable and collectability of such fees is reasonably assured. Revenue from
an advertising barter transaction is recorded only if the fair value of the
advertising surrendered in the transaction is determinable based on the entity's
own historical practice of receiving cash for the similar barter transactions
within the preceding six month period.
If the fair value of the advertising surrendered in the barter transaction is
not determinable, the advertising income from the barter transaction is recorded
based on the carrying amount of the advertising surrendered, which is generally
nil.
3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION - CONTINUED
Capital assets
Capital assets are recorded at cost, less accumulated amortization. Amortization
is provided over the estimated useful lives of the assets as follows:
Furniture and fixtures - 20% declining balance
Leasehold improvements - 20% straight line
Computer hardware - 30% declining balance
Computer software - 100% declining balance
Capital assets purchased during the period are amortized at one-half of the
above stated rates.
Goodwill
Goodwill, until the end of fiscal 2002, is being amortized on a straight-line
basis over its estimated useful life of 5 years.
Effective with the commencement of the fiscal year beginning April 1, 2002, the
Company will, as directed by Section 3062 of the Handbook of the Canadian
Institute of Chartered Accountants, cease recording amortization charges in
respect of acquisition goodwill and will evaluate, on an annual basis, whether
the carrying value of such goodwill is impaired. If impairment exists, a charge
of such impairment will be recorded. During fiscal 2003, an initial review of
impairment will be performed. If impairment is found to exist, an appropriate
adjustment will be made to the deficit at April 1, 2002 accordingly.
28.
Income taxes
The Company follows the asset and liability approach to accounting and reporting
for income taxes.
The income tax provision differs from that calculated by applying the statutory
rates to the changes in current or future income tax assets or liabilities
during the period.
The Company provides a valuation allowance to reduce future income tax assets
when it is more likely than not that the asset will not be realized.
Foreign currency translation
The reporting currency in these consolidated financial statements is the
Canadian dollar. Accordingly, assets and liabilities denominated in U.S. dollars
have been translated into Canadian dollars at the exchange rate prevailing at
the balance sheet date other than common stock, which has been translated at
historical rates. Results of operations have been translated at the average
exchange rate for the period.
Costs of raising capital
Incremental costs incurred in respect of raising capital are charged against
equity proceeds raised.
4. CAPITAL ASSETS
As At March 31, 2002
------------------------
Accumulated Net Carrying
Cost Amortization Amount
------------- ------------- -------------
Furniture and equipment $ 55,183 $ 17,589 $ 37,594
Leasehold improvements 8,141 5,150 2,991
Computer hardware 225,482 131,871 93,611
Computer software 20,958 19,850 1,108
------------- ------------- -------------
$ 309,764 $ 174,460 $ 135,304
============= ============= =============
As At March 31, 2001
------------------------
Accumulated Net Carrying
Cost Amortization Amount
------------- ------------- -------------
Furniture and equipment $ 54,303 $ 8,300 $ 46,003
Leasehold improvements 8,141 3,522 4,619
Computer hardware 219,052 93,130 125,922
Computer software 18,741 10,409 8,332
------------- ------------- -------------
$ 300,237 $ 115,361 $ 184,876
============= ============= =============
29.
5. GOODWILL
As At March 31, 2002
------------------------
Accumulated Net Carrying
Cost Amortization Amount
------------- ------------- -------------
Goodwill $ 341,195 $ 150,694 $ 190,501
============= ============= =============
As At March 31, 2001
------------------------
Accumulated Net Carrying
Cost Amortization Amount
------------- ------------- -------------
Goodwill $ 341,195 $ 82,456 $ 258,739
============= ============= =============
6. CONVERTIBLE NOTES PAYABLE
The convertible notes payable are non-interest bearing, unsecured and
payable within one year from the date of the note payable. The notes are
convertible, at the option of the lenders, at a conversion rate of US $0.25
per common stock for a total of approximately 320,000 common shares.
7. LOANS PAYABLE
The loans payable are unsecured, bear no interest and have no fixed terms
of repayment.
8. NOTE PAYABLE
The company's wholly-owned subsidiary, Pizay Investments Inc. ("Pizay"), entered
into an agreement with ProAm Exploration Corporation with an exclusive option to
acquire an undivided 10% interest in the property. As a part of the agreement, a
non-interest bearing demand note payable of $90,000 was issued. The agreement
was terminated in 1999. The non-interest bearing note arising from a dispute in
1999 will be litigated at a trial in July, 2003.
9. DUE TO SHAREHOLDERS
Shareholders' advances are unsecured, bear no interest and while there are no
fixed terms of repayment, the lenders have agreed not to demand payment before
July 1, 2003.
10. CAPITAL STOCK
i) Authorized
Unlimited number of Common shares
Issued - Common shares Number Amount
Balance as at April 1, 2000 30,580,866 $1,125,126
Issued for cash 2,250,000 225,000
----------- ----------
Balance as at March 31, 2001 32,830,866 1,350,126
Issued for cash 3,505,000 420,600
----------- ----------
Balance as at March 31, 2002 $36,335,866 $1.770.726
=========== ==========
ii) Stock Options
30.
The Company currently issues stock options at the direction of the Board of
Directors. These options have been granted to employees, directors, and
consultants under the Company's stock option plan and any other terms and
conditions determined by the Board of Directors at the time the options are
issued. These options are granted with an exercise price equal to the market
price of the Company's stock on the date of the grant. Presented below is a
summary of stock option plan activity:
Wt. Avg. Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
---------- --------- ------------ ------
Balance, April 1, 2000 1,591,000 $ 0.25 1,591,000 $ 0.25
--------- ------
Cancelled (77,500) - (77,500) 0.25
Granted 232,500 - 232,500 0.25
Exercised - - - -
---------- --------- ------------ ------
Balance, March 31, 2001 1,746,000 $ 0.25 1,746,000 $ 0.25
Cancelled (429,000) - (429,000) 0.25
Granted 623,500 - 623,500 0.25
Exercised - - - -
---------- --------- ------------ ------
Balance, March 31, 2002 1,940,500 $ 0.25 1,940,500 $ 0.25
========== ========= ============ ======
10. CAPITAL STOCK - Continued
Options outstanding and exercisable at March 31, 2002 are as follows:
Outstanding Exercisable
----------- -----------
Wt. Avg.
Expiry Remaining Wt. Avg. Exercise
Price Number Date Life Exercise Price Number Price
- ----------- --------- --------------- --------- -------------- --------- ------
0.25 1,271,000 February, 2003 1 0.25 1,271,000 $ 0.25
0.25 30,000 September, 2010 8 0.25 30,000 0.25
0.25 120,000 December, 2010 8 0.25 120,000 0.25
0.25 30,000 February, 2011 9 0.25 30,000 0.25
0.25 30,000 May, 2011 9 0.25 30,000 0.25
0.25 40,000 August, 2011 9 0.25 40,000 0.25
0.25 10,000 November, 2011 9 0.25 10,000 0.25
0.25 409,500 December, 2011 9 0.25 409,500 0.25
1,940,500 1,940,500
========= =========
11. REVENUE - BARTER TRANSACTION
The Company entered into barter transactions with a notional value of $
923,358 during the year ended March 31, 2002 (Nil for March 31, 2001). As
the fair value of the barter transactions was not determinable, the barter
transactions have not been reflected in these financial statements.
12. CONTINGENT LIABILITY
In 1998, a claim was filed against the Company and its subsidiary seeking
damages of $2,000,000 resulting from a breach of a contract. The Company
has defended the claim on the basis that the contract was properly
terminated. Management believes this action will not have a material
adverse effect on the financial position of the Company and no provision
has been accrued in these financial statements. There has been no activity
on this claim in the last 12 months.
13. LEASE COMMITMENTS
The subsidiary of the Company is obligated under operating leases for its
premises, vehicles and equipment. The lease of premises expires on June 30,
2004.
Future minimum payments for its operating leases as at March 31, 2002 are
approximately as follows:
2003 $ 84,000
2004 $ 82,000
2005 $ 18,000
14. INCOME TAXES
The Company has available non-capital losses, the benefits of which have
not been recorded, of approximately $2,650,000 to be applied against future
taxable income. The losses expire as follows:
31.
14. INCOME TAXES - continued
2005 $ 80,000
2006 133,000
2007 614,000
2008 771,000
2009 1,052,000
-------------
$ 2,650,000
=============
The nature and effects of the temporary differences that give rise to
significant portions of the future income tax asset is as follows:
March 31, March 31,
2002 2001
------------ -----------
Future income tax asset - Losses carried forward $ 1,113,000 $ 703,000
Valuation allowance (1,113,000) (703,000)
------------ -----------
Net future income tax asset $ - $ -
============ ===========
No future income tax asset has been recorded in respect of the above
because the company cannot determine whether it is more likely than not
that it will be able to realize the future income tax assets during the
carry forward period.
15. LOSS PER SHARE
Loss per share is calculated on the basis of the weighted average number of
common shares outstanding for the year. Loss per share has not been
presented on a fully diluted basis as the effect would be antidilutive.
16. CHANGES IN NON-CASH OPERATING ITEMS AND SUPPLEMENTAL CASH FLOW DISCLOSURE
Changes in non-cash operating items:
March 31, March 31,
2002 2001
(Increase) decrease in accounts receivable $ (59,371) $ 69,286
Decrease (increase) in prepaid and sundry receivables 41,612 (40,929)
Increase (decrease) in deferred revenue 99,794 (30,714)
Increase in accounts payable and accrued liabilities 191,957 299,337
----------- -----------
$ 273,992 $ 296,980
=========== ===========
Interest paid $ 56,378 $ 11,755
=========== ===========
17. FAIR VALUE OF FINANCIAL STATEMENTS
The Company's financial assets and liabilities are valued at management's best
estimates of fair values as follows:
(i) Accounts receivable
The carrying amount is equal to the fair value due to the liquidity of the
assets.
32.
(ii) Notes payable, loans payable
Based on maturity and interest at fixed rates, the estimated fair value is
approximately equal to the carrying value.
(iii) Accounts payable
The carrying value is equal to the fair value due to the requirements to
extinguish the liabilities on demand.
18. RELATED PARTY TRANSACTIONS
Computer expenses include $264,736 (2001 - $124,623) paid to a company with
common ownership and were incurred in the normal course of operations and
have been accounted for at an amount of consideration established and
agreed to by the related parties.
Administrative expenses include rent of approximately $ 72,000 (2001 -
$Nil) received from a company with common ownership and were incurred in
the normal course of operations. The rent has been accounted for at an
amount of consideration established and agreed to by the related parties.
19. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION
The subsidiary of the Company has been operating in one business segment only,
being monthly subscription to, and license of, website and video contents.
Geographical information
Information as to sales and accounts receivable by reportable geographic
segments is:
March 31, March 31,
2002 2001
---------- ----------
Sales
-----
Canada 4% 5%
United States 96% 95%
Accounts receivable
-------------------
United States 100% 100%
20. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES
The consolidated financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"). In certain respects, Canadian GAAP differs from United States
generally accepted accounting principles ("U.S. GAAP"). The effects on the
Company's financial statements resulting from these differences are
summarized as follows:
BALANCE SHEET
March 31, March 31,
2002 2001
------------ ------------
TOTAL ASSETS UNDER CANADIAN GAAP $ 465,072 $ 589,121
Adjustments in respect of:
- - Goodwill on reverse takeover (190,501) (258,739)
------------ ------------
TOTAL ASSETS UNDER U.S. GAAP $ 274,571 $ 330,382
============ ============
33.
March 31, March 31,
2002 2001
------------ ------------
SHAREHOLDERS' EQUITY UNDER CANADIAN GAAP $ (718,075) $ (103,367)
Adjustments to opening balances to reflect effect of:
Correction of prior period - compensation expenses (130,680) -
- paid in capital 130,680 -
Goodwill on reverse takeover (258,739) (326,978)
------------ ------------
Opening balance under U.S. GAAP, as adjusted (967,814) (380,345)
Adjustments in respect of:
Compensation expense for stock options (87,120) -
Equity - Paid in capital for compensation expense 87,120 -
Correction of prior period - compensation expenses (Note 20 (c)) - (130,680)
- paid in capital (Note 20 (c)) - 130,680
Amortization of goodwill on reverse takeover 68,239 68,239
------------ ------------
SHAREHOLDERS' EQUITY UNDER U.S GAAP $ (908,575) $ (312,106)
============ ============
20.CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES - continued
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
March 31, March 31,
2002 2001
------------ ------------
NET LOSS UNDER CANADIAN GAAP $(1,035,308) $ (889,056)
Adjustments in respect of:
Compensation expense for stock options (Note 20(b)) (87,120) -
Correction of error (Note 20 (c)) - (130,680)
Amortization of goodwill on reverse takeover 68,239 68,239
------------ ------------
NET LOSS AND COMPREHENSIVE INCOME UNDER U.S. GAAP $(1,054,189) $ (951,497)
============ ============
Loss per common share as per U.S. GAAP
Basic
- - Weighted average common shares outstanding 34,062,373 30,958,948
- Basic loss per share $ (0.03) $ (0.03)
Loss per share has not been presented on a fully diluted basis as the effect would be anti-dilutive.
34.
20. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES - continued
STATEMENT OF SHAREHOLDERS' EQUITY
In accordance with U.S. GAAP, statement of shareholders' equity is
presented as under:
Total
Capital Shareholders
Stock Deficit Equity
---------- ------------ --------------
Common Stock
Balance, April 1, 2000 $1,125,126 $ (891,415) $ 233,711
Issued during the year
Issuance of shares for cash 225,000 - 225,000
Stock option compensation (Note 20 (b)) 130,680 130,680
Net loss - (951,497) (951,497)
---------- ------------ --------------
Balance, March 31, 2001 1,350,126 (1,712,232) (362,106)
Issued during the year - for cash 420,600 - 420,600
Stock option compensation 87,120 87,120
Net Loss - (1,054,189) (1,054,189)
---------- ------------ --------------
Balance, March 31, 2002 $1,770,726 $(2,679,301) $ (908,575)
========== ============ ==============
STATEMENTS OF CASH FLOWS
There are no material differences between the Canadian GAAP used in
preparing the statements of cash flows and those that would apply had the
statements been prepared in accordance with U.S. GAAP.
DIFFERENCE BETWEEN CANADIAN AND U.S. GAAP AND ADDITIONAL DISCLOSURES
a) Goodwill on reverse takeover
In accordance with Canadian GAAP (EIC 10), the excess of purchase consideration
paid in a reverse takeover transaction over the sum of the amounts assigned to
the assets acquired and liabilities assumed is recorded as goodwill as described
in Note 5.
In accordance with U.S. GAAP, the purchase consideration paid on the merger of a
public shell and a private operating company is accounted for as a
recapitalization of the private operating company and no goodwill is recorded.
Accordingly, the audited balance sheets for 2002 and 2001 prepared in accordance
with Canadian GAAP would have been restated under U.S. GAAP to reduce the
goodwill and share capital recorded. In addition, the statements of operations
for 2002 and 2001 are also adjusted to reverse the annual amortization of
goodwill.
35.
20. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES - continued
b) Stock options
Transactions with non-employees
In 2001, the Company granted options to certain consultants in
consideration for services received. Under U.S. GAAP, the Company is
required to adopt SFAS 123, "Accounting for Stock Based Compensation" and
account for these compensatory stock options based on a fair value of
accounting.
Accordingly, the previously prepared and audited Canadian GAAP statements
of operations for 2002 would have been restated under U.S. GAAP to record a
compensation expense of $87,120 charged to income statement and credited to
Paid-in-Capital.
Transactions with employees
United States GAAP (FAS 123) requires certain disclosures regarding stock
options granted to employees as compensation under stock option plans.
Because the Company applies principles of APB 25, accounting for stock
issued to employees, which are the same as Canadian generally accepted
accounting principles, there are no differences noted in respect of the
options granted. However, in accordance with FAS 123, the Company would be
required, in any event, to disclose the following:
"The Company is required to adopt FAS 123, Accounting for Stock-Based
Compensation. In accordance with the provisions of FAS 123, therefore, the
company applied APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its employee stock
option plans. In accordance with APB Opinion No. 25, the Company would not
recognize compensation expense for its stock-based compensation plans as
the exercise price of options granted under the plan was not less then the
than current fair market value of common shares.
SFAS 123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB 25 to present pro forma
disclosures of net income and earnings per share as if compensation cost
was measured at the date of grant based on fair value of the award. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions:
Expected life of options 10 years
Risk free interest rate 5.2%
Expected volatility 175%
Expected dividend yield 0.0%
20. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES - continued
Had the compensation costs for the Company's stock option plan been recognized
based upon the fair value on the grant date under the methodology prescribed by
SFAS 123, the Company's income from continuing operations and earnings per share
for the periods ended March 31, 2002 and 2001 would have been impacted as
indicated in the following table. The results, which reflect only the impact of
the options granted, are as follows:
36.
March 31, March 31,
2002 2001
Reported Proforma Reported Proforma
------------ ----------- ---------- ------------
Net loss $(1,054,189) $ (996,989) $(951,497) $(1,112,300)
Basic loss per share $ (0.03) $ (0.03) $ (0.03) $ (0.04)
c) Correction of prior period
During the year, it was determined that options granted in the prior period
to non-employees had been accounted for using principles of APB 25 instead
of SFAS 123. To correct this under US GAAP, a compensation expense of
$130,680 has been charged to income for the prior year and credited to
Paid-in-Capital.
d) Accounts receivable
U.S. GAAP REQUIRES DISCLOSURE OF ALLOWANCE FOR DOUBTFUL ACCOUNT IN THE
FINANCIAL STATEMENTS.
The Company has not recorded any such allowance for the periods presented
in these financial statements.
e) DEFERRED TAX ASSET
Deferred tax asset (in Canada, future income tax asset) is comprised of
benefits arising from losses carried forward. No deferred tax asset has
been recorded in accordance with Canadian GAAP because the Company cannot
determine whether it is more likely than not that it will be able to
realize the benefit of these losses carried forward during the carry
forward period. U.S. GAAP requires, in such circumstances, that disclosure
be made of the value of the asset and any valuation allowance applied to
it. Therefore, in accordance with U.S. GAAP the following would be included
in disclosures related to deferred tax asset in notes to the financial
statements:
March 31, 2002 March 31, 2001
---------------- ----------------
Deferred tax asset $ 1,113,000 $ 703,300
Less: Valuation allowance (1,113,000) (703,300)
---------------- ----------------
Net deferred tax asset $ - $ -
================ ================
20. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES DIFFERENCES - continued
f) Information as to products, geographic markets, significant estimates and
concentrations
United States GAAP requires information as to products, geographic markets,
significant estimates and concentrations, to be disclosed in the notes to
financial statements. This information is usually disclosed with the
summary of significant accounting policies. Such information is provided in
Note 19.
g) Differences in various accounting terms used in U.S. GAAP and Canadian GAAP
The following is a summary:
U.S. GAAP Canadian GAAP
Deferred income taxes Future income taxes
Depreciation of tangible Amortization
capital assets
Excess of cost over fair Goodwill
value of net assets acquired
Reverse acquisition Reverse takeover
37.
g) Recent accounting pronouncememts
U.S. GAAP (Securities and Exchange Commission Staff Accounting Bulletin 74)
requires that recently enacted pronouncements that may have an impact on
financial statements be discussed and the impact, if known, disclosed.
Accordingly, under U.S. GAAP, the following disclosures are required:
(i) In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company has adopted the provisions of SAB 101 and such
adoption did not materially impact the Company's operations or financial
position.
(ii) On June 29, 2001, SFAS No. 141, "Business Combinations" ("SFAS 141"),
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), were
issued. SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS 141 also
specifies the criteria that intangible assets in business combination must meet
to be recognized and reported apart from goodwill.
SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead, be tested for impairment, at
least annually, in accordance with the provisions of SFAS 142. SFAS 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives, to their estimate residual values, and
be reviewed for impairment in accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." The provisions of SFAS 141
are effective immediately, except with regards to business combinations
initiated prior to July 1, 2001. SFAS 142 will be effective as of April 1, 2002
for the Company. The Company continued to amortize goodwill acquired in
business combination completed before July 1, 2001 through the year ended March
31, 2002. The Company is currently evaluating the effect that the adoption of
SFAS 141 and SFAS 142 will have on its results of operations and its financial
position having determined to the date of these financial statements that, other
than the identification and separate recognition of intangible assets there
would have been no impact of SFAS 141 had its provisions been applied to the
previously completed acquisition.
As the principles stated in both of these pronouncements are substantially
similar to those followed under Canadian GAAP, when these pronouncements have
been reviewed and implemented by the Company, there will continue to be no
differences between Canadian and U.S. GAAP in respect of revenue recognition or
accounting for business combinations or goodwill and other intangible assets.
(iii) Long-Lived Assets
In October 2001, the Financial Accounting Standards Board (FASB) issued
statement No. 122, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." For fiscal years beginning after December
15, 2001, the statement requires that long-lived assets be measured at the lower
of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. At this time, management
does not expect that the adoption of FAS 144 to have a material effect on the
company's operations or financial position.
38.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration (annual report) on its behalf
-------------------------------
Registrant
-------------------------------
Registrant
Date:
--------------------------------
Print the name and title of the signing officer under this signature
39.