UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 16, 2002
TELEMAX GLOBAL COMMUNICATIONS, INC.
(Formerly known as Organik Technologies, Inc.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 0-26351 81-0440517
- ------------------------------- ------------------------ --------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation Identification Number)
736 Dundas Street East
Toronto, Ontario, Canada M5A 2C3
(Address of principal executive offices)
(416) 703-0334
---------------------------------------------------
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A is filed to submit the financial statements and pro forma
financial information for the business acquired pursuant to the acquisition
reported on the Form 8-K previously filed on February 25, 2002.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired.
The audited financial statements of Telemax Communications, Inc. and
Parsecom, Inc. for the fiscal year ended June 30, 2001. Also enclosed
are the unaudited financial statements for Telemax Global
Communications, Inc., an Ontario corporation, Telemax Communications,
Inc. and Parsecom, Inc. for the period ended December 31, 2001. All
three companies are Canadian, and the financial statements included are
presented in Canadian currency and in accordance with Canadian Generally
Accepted Accounting Principles.
In addition, schedules are included reconciling the financial statements
of these entities from Canadian currency and Canadian Generally Accepted
Accounting Principles to US currency and US Generally Accepted
Accounting Principles.
(b) Pro Forma Financial Information
Telemax Global Communications, Inc. (Organik Technologies, Inc.) amended
Proforma combining financial statements as of June 30, 2001 and December
31, 2001 are filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELEMAX GLOBAL COMMUNICATIONS, INC.
Dated: May 28, 2002 /s/ Evan Karras
----------------------------------------------------
Evan Karras, President
(Authorized Officer and Principal Financial Officer)
TELEMAX COMMUNICATIONS INC.
FINANCIAL STATEMENTS
JUNE 30, 2001
1-i.
TELEMAX COMMUNICATIONS INC.
JUNE 30, 2001
CONTENTS
Page
----
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and (Deficit) 3
Statement of Cash Flows 4
Notes to Financial Statements 5-9
1-ii.
[GRAPHIC OMITTED]
QUICK, GREENSPAN
----------------------------------
& RADVANY LLP
CHARTERED ACCOUNTANTS
TERENCE O. ANDERSON, CA
RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610
DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3
JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000
CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225
R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282
www.quick-greenspan.com
AUDITORS' REPORT
Stockholders and Board of Directors
Telemax Communications Inc.:
We have audited the accompanying balance sheet of Telemax Communications Inc. as
of June 30, 2001, and the statements of income and (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of Telemax Communications Inc. as
of June 30, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Quick, Greenspan & Radvany LLP
TORONTO, Ontario
September 26, 2001
CHARTERED ACCOUNTANTS
1-1.
TELEMAX COMMUNICATIONS INC.
BALANCE SHEET
AS AT JUNE 30, 2001
ASSETS
2001 2000
---- ----
CURRENT
Cash and cash equivalents (Note 3(a)) $ 77,170 $ -
Short-term investments (Note 3(b)) 450,000 -
Accounts receivable (Note 3(c)) 1,208,947 554,639
Inventory (Note 3(d)) 24,600 72,376
Prepaid expenses 324,927 35,000
Amounts due from parent company (Note 4) 3,750,000 -
------------ ------------
5,835,644 662,015
FIXED ASSETS (Note 5) 189,768 192,070
------------ ------------
$ 6,025,412 $ 854,085
============ ============
LIABILITIES
CURRENT
Bank indebtedness $ - $ 75,396
Bank loans payable (Note 6) 450,000 295,000
Accounts payable (Note 2) 1,592,474 813,482
Accrued liabilities 7,499 -
Deferred revenue 190,494 -
Current portion of capital lease obligations (Note7) 18,574 18,574
Current portion of loans payable (Note 8) 104,156 50,000
------------ ------------
2,363,197 1,252,452
CAPITAL LEASE OBLIGATIONS (Note 7) 25,301 42,176
LOANS PAYABLE (Note 8) 166,680 14,753
DIRECTORS' LOANS (Note 9) 1,471,606 807,617
------------ ------------
4,026,784 2,116,998
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
CAPITAL STOCK (Note 10) 4,001,000 1,000
DEFICIT (2,002,372) (1,263,913)
------------ ------------
1,998,628 (1,262,913)
------------ ------------
$ 6,025,412 $ 854,085
============ ============
APPROVED ON BEHALF OF THE BOARD:
_________________________ Director ____________________________ Director
SEE ACCOMPANYING NOTES
1-2.
TELEMAX COMMUNICATIONS INC.
STATEMENT OF INCOME AND (DEFICIT)
FOR THE YEAR ENDED JUNE 30, 2001
2001 2000
---- ----
SALES $ 12,152,410 $ 9,541,716
COST OF SALES (Note 2) 10,815,015 8,284,597
------------ -------------
GROSS PROFIT 1,337,395 1,257,119
EXPENSES
Salaries and benefits 641,246 465,944
Bad debts 226,491 17,122
Sales commissions 221,588 280,964
Research and development 206,841 447,602
General and administrative 164,689 107,532
Legal and accounting 112,669 15,054
Rent 85,382 118,150
Automotive expenses 78,216 46,256
Interest and bank charges 77,548 56,399
Depreciation 58,183 33,525
Telephone 55,753 38,531
Advertising and promotion 48,794 66,318
Penalties and interest 40,830 -
Consulting fees 23,354 54,932
Repairs and maintenance 11,568 3,104
Travel 10,872 21,903
Equipment rental 7,664 33,193
Foreign exchange loss 4,446 32,372
Insurance 1,632 3,449
------------ -------------
2,077,766 1,842,350
------------ -------------
LOSS FROM OPERATIONS (740,371) (585,231)
OTHER INCOME
Other income 1,912 17,516
------------ -------------
NET LOSS (738,459) (567,715)
DEFICIT, beginning of year (1,263,913) (696,198)
------------ -------------
DEFICIT, end of year $ (2,002,372) $ (1,263,913)
============ =============
SEE ACCOMPANYING NOTES
1-3.
TELEMAX COMMUNICATIONS INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2001
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (788,459) $ (567,715)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 58,183 33,525
----------- -----------
Cash flow (used in) operations (730,276) (534,190)
CHANGE IN ASSETS AND LIABILITIES:
(Increase ) decrease in short-term investments (450,000) 150,000
(Increase) in accounts receivable (654,308) (278,071)
Decrease (increase) in inventories 47,776 (51,276)
(Increase) decrease in prepaid expenses (289,927) 10,000
Increase in accounts payable 828,992 179,222
Increase (decrease) in accrued liabilities 7,500 (77,402)
Decrease in deferred revenue 190,494 -
Increase in current portion of long-term
loans payable 54,156 -
Increase in current portion of capital
lease obligations - 18,574
----------- -----------
Net cash provided by operating activities (995,593) (583,143)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in share capital 250,000 -
Increase in bank loans 155,000 295,000
Increase in long-term loans payable,
less current portion 166,680 -
Repayment of long-term loans payable (14,753) (185,247)
Increase in capital lease obligations,
less current portion - 42,176
(Repayment) of capital lease obligations (16,875) -
Increase in directors' loans 663,989 380,717
----------- -----------
Net cash provided by financing activities 1,204,041 532,646
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (55,882) (140,634)
----------- -----------
Net cash used in investing activities (55,882) (140,634)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 152,566 (191,131)
NET CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (75,396) 115,735
----------- -----------
NET CASH AND CASH EQUIVALENTS, END OF YEAR $ 77,170 $ (75,396)
=========== ===========
SEE ACCOMPANYING NOTES
1-4.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
1. ORGANIZATION
The Company was incorporated under the laws of the province of Ontario
on May 12, 1997. It manufactures and is a distributor of prepaid
telephone cards operating under the trade name Telemax Communications
Inc.
2. GOING CONCERN
Comtel Communications Inc. (formerly Symphony Telecom Inc.), the
Company's parent company, owes the Company $3,750,000 at June 30, 2001,
which is the balance of a $4,000,000 promissory note issued on July 31,
2000 in exchange for common shares. Comtel Communications Inc. has not
met its payments under the terms of the promissory note, and is unlikely
to meet its obligations to the Company. Negotiations are continuing,
which may result in the Company acquiring its shares issued to Comtel
Communications Inc.
In November 2000 the Company changed its relationship with its primary
service provider from a joint venture partnership to one of
customer/supplier. The Company has identified errors in billings from
its primary service provider in the period from July through September
2001, by analyzing Call Detail Reports supplied by its service provider.
Because Call Detail Reports have not been made available for the period
November 2000 through June 2001, management is not able to quantify the
amount of over-billings in this period. However, based upon its current
studies and discussions with its primary service provider, management
has estimated that over-billings booked to cost of sales approximates
$1,800,000. As the final amount has to be negotiated with its service
provider, management has reduced cost of sales and trade accounts
payable by $1,200,000. Management further believes that, together with
its primary service provider, it now controls its telephone services
costs, so that gross margins will be restored, and the Company's
operations should generate a positive cash flow.
As a result of failure of Comtel Communications Inc. to meet its
obligations under the promissory note, the Company was unable to
implement its strategic plan which was designed to expand its sales and
marketing activities, implement a switching facility to reduce cost of
carrier and service bureau, diversify its product line, improve its
profit margin and stabilize its sales. Futhermore, projects undertaken
and started, assuming availability of funds, to implement its strategic
plan such as hiring sales staff, negotiating with carriers, purchasing
switch, signing lease agreement for a switching facility had to be
cancelled or reversed. These resulted in a major loss and drain in the
capital available to the Company to service its operation. As a result,
the Company was not able to meet its projected sales and profit
estimates.
The Company has taken action to pursue other sources of capital such as
additional equity financing, debt financing or make arrangements with
its primary service provider to allow time for operations to recover.
The financial statements do not include any adjustments that might
result from the outcome of this going concern uncertainty. Management's
1-5.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
plans over the next twelve-month period are to vigorously control its
telephone services costs/gross margins, and further develop its revenue
growth through strategic alliances.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. Outlined below are
those policies considered particularly significant for the Company.
(a) Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash equivalents
consist of money market funds and demand deposits in banks, purchased
with a maturity of three months or less. The Company has no such items
at June 30, 2001 and June 30, 2000.
(b) Short-term investments
The Company holds guaranteed investment certificates, with interest at
5.0% and maturing in December 2001, as security for letters of credit
issued to its primary service provider. In August 2001, the primary
service provider presented $250,000 of letters of credit for payment.
(c) Accounts receivable.
The Company sells prepaid phonecards both wholesale and retail. Deposits
received from new wholesale accounts substantially protected the Company
from bad debts, therefore no provision was considered necessary in prior
years. As the Company continues to grow, it now considers it necessary
to provide for bad debts. Accordingly, a provision of $237,382 has been
charged to income in the year ended June 30, 2001.
(d) Inventory
Inventory of activated and unactivated prepaid telephone cards is valued
at the lower of cost and market.
(e) Fair value of financial instruments
The Company estimates that the fair value of all financial instruments
at June 30, 2001 and June 30, 2000 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
balance sheet. The estimated fair value of amounts of receivables,
accounts payable and accrued liabilities approximate fair value due to
their short-term nature. Considerable judgement is necessarily required
in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
(d) Fixed Assets
Fixed assets are recorded at cost. Expenditures for normal maintenance
1-6.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
and repairs are charged to expense as incurred. Depreciation is provided
annually at rates calculated to write-off the assets over the estimated
useful lives of the related assets. The basis of calculations has been
adjusted to reflect those reported in the parent company, and such
changes have no material difference to accumulated depreciation.
Depreciation expense was $58,183 for the year ended June 30, 2001 and
$33,525 for the year ended June 30, 2000.
Computer hardware - 13 years 30%per annum on reducing balance
Computer software - 5 years 20%per annum on straight line
Furniture and fixtures - 20 years 20%per annum on reducing balance
Office equipment under
capital lease - 20 years 20%per annum on reducing balance
Telephone equipment - 16 years 25%per annum on reducing balance
(e) Income taxes
The Company has filed corporate federal and provincial income tax
returns through April 30, 2001, and has net operating loss carryforwards
of $1,862,741available to offset financial statement or tax return
taxable income in future periods:
Year Loss Expires
---- ---- -------
2001 $ 909,819 2008
2000 $ 621,244 2007
1999 $ 163,923 2006
1998 $ 167,755 2005
(f) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
(g) Reclassifications
Certain amounts in the accompanying financial statements have been
reclassified to better reflect the Company's operations, in the opinion
of management. These reclassifications have been reflected in all
amounts shown in the accompanying financial statements.
4. AMOUNTS DUE FROM PARENT COMPANY
Comtel Communications Inc., formerly Symphony Telecom Inc., parent
company with 61.5% interest, owes the Company $3,750,000 under a
promissory note dated July 31, 2000, which was issued as consideration
for 307,500 common shares issued from treasury. Comtel Communications
Inc. is delinquent in its payments under the promissory note, and there
is no indication that payment will be made, see Going Concern - Note 2,
and Capital Stock - Note 10.
1-7.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
5. FIXED ASSETS
Accumulated Net Net
Cost Depreciation 2001 2000
---- ------------ ---- ----
Computer Hardware $ 140,006 $ 44,328 $ 95,678 $ 77,635
Computer Software 28,576 28,219 357 2,116
Furniture and Fixtures 11,957 4,276 7,681 8,763
Equipment under
Capital Lease 67,500 18,900 48,600 60,750
Telephone Equipment 54,261 16,809 37,452 42,806
---------- ------------ --------- ----------
$ 302,300 $ 112,532 $ 189,768 $ 192,070
========== ============ ========= ==========
6. BANK LOANS PAYABLE
The Company's bankers have provided the Company with a line of credit
facility of $450,000 (2000 - $300,000), with interest at the bank's
prime plus 1.25% on the first $230,000 and 1.55% on the balance, secured
by a general security agreement over the Company's assets.
7. CAPITAL LEASE OBLIGATIONS
The Company has leased office equipment for a 5 year-term maturing
October 27, 2004 and repayable quarterly at $4,644 plus interest at 6%.
The Company has the option to buy the equipment after 20 months, June
28, 2001, for 48% of purchase price, $34,992. The option to buy has not
been exercised.
8. LOANS PAYABLE
2001 2000
---- ----
The Company was provided with a Small
Business Loan by its bankers in the amount $ 20,836 $ 64,753
of $250,000, with interest at bank's prime
plus 2.5%, which is secured by capital assets.
Repayment is $4,167 monthly, maturing
September 30, 2001.
The Business Development Bank of Canada 250,000 -
advanced the Company $250,000 in the year
to purchase telephone equipment. The loan is at
the bank's floating rate plus 2.0% and secured
by telephone equipment totaling $488,000.
Principal repayment of the loan is scheduled as
1-8.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
one payment of $6,925 on July 31, 2001, plus 35
equal monthly payments of $6,945 plus interest
on the outstanding balance. The balance of the
telephone equipments' purchase price $238,000 is
being contributed from working capital. --------- ---------
Total loans payable 270,836 64,753
Less: current portion due within one year 104,156 50,000
--------- ---------
$ 166,680 $ 14,753
========= =========
9. DIRECTORS' LOANS
Directors have advanced non-interest bearing loans of $1,471,606 (2000 -
$807,617), which are without terms of repayment, and therefore are
reported as long-term. Of these loans from directors $500,000 is
postponed to bank loans.
10. CAPITAL STOCK
Authorized
Unlimited number of no par value common shares
Unlimited number of no par value Class "A" shares
Stated Capital
2001 2000
---- ----
1,000,000 common shares $ 4,001,000 $ 1,000
============= ==============
On July 31, 2001 the Company increased its issued share capital to
1,000,000 common shares by issuing 999,000 common shares from treasury,
of which 691,500 common shares were issued to existing shareholders and
307,500 common shares were issued to Comtel Comunications Inc. in
exchange for a promissory note in amount of $4,000,000. The issuance of
these shares to Comtel Communications Inc. together with sales of
307,500 common shares from existing shareholders in exchange for cash
and shares of Comtel Communications Inc. gave Comtel Communications Inc.
61.5% interest and control. However as noted above, payments under the
promissory note are in default, which has resulted in negotiations
between shareholders to resolve share ownership.
1-9.
PARSECOM INC.
-------------
FINANCIAL STATEMENTS
--------------------
JUNE 30, 2001
-------------
2-1.
______________________
______________________
PARTRIDGE o SKRYPNYK
LLP
CHARTERED ACCOUNTANTS
AUDITORS'REPORT
To the Shareholder of Parsecom Inc.:
We have audited the balance sheet of Parsecom Inc. as at June 30, 2001 and
the statements of retained earnings, loss and changes in financial position for
the period then ended. These financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as ,evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2001 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
/S/ PARTRIDGE SKRYPNYK LLP
London, Ontario Chartered Accountants
May 1, 2002
145 WHARNCLIFFE ROAD, S., LONDON, ONTARIO N6J 2K4
TEL: (519) 672-3154 o E-Mail: psc@wwdc.com o FAX: (519) 672-7983
2-2.
STATEMENT 1
PARSECOM INC.
-------------
BALANCE SHEET
-------------
JUNE 30, 2001
-------------
ASSETS
------
Current:
Cash $ 14,278
Accounts receivable 53,557
---------------
67,835
---------------
Capital assets (note 2, 3 and 4) 408,045
---------------
Investment in Logictel Inc. (note 4 and 6) 372,400
---------------
$ 848,280
===============
LIABILITIES AND OWNERS' EQUITY
Current:
Accounts payable and accrued liabilities $ 43,455
---------------
Shareholder's equity:
Share capital (note 5) 811,465
Retained earnings (statement 2) (6,640)
---------------
804,825
---------------
$ 848,280
===============
(See accompanying notes)
2-3.
STATEMENT 2
PARSECOM INC.
-------------
STATEMENT OF RETAINED EARNINGS
------------------------------
FROM DATE OF INCORPORATION TO JUNE 30, 2001
-------------------------------------------
Retained earnings, beginning of period $
Net loss for the period (statement 3) (6,640)
------------
Retained earnings, end of period $ (6,640)
============
(See accompanying notes)
2-4.
STATEMENT 3
PARSECOM INC.
-------------
STATEMENT OF LOSS
-----------------
FROM DATE OF INCORPORATION TO JUNE 30, 2001
-------------------------------------------
Revenue:
Sales $ 38,161
Other 25,768
------------
63,929
------------
Expenses:
Amortization 22,732
Rent 17,000
Consulting fees 9,295
Telephone 7,034
Utilities 6,800
Long distance carrier costs 4,538
Office 3,151
Bank charges and interest 19
------------
70,569
------------
Net loss for the period $ (6,640)
============
(See accompanying notes)
2-5.
STATEMENT 4
PARSECOM INC.
-------------
STATEMENT OF CHANGES IN FINANCIAL POSITION
------------------------------------------
FROM DATE OF INCORPORATION TO JUNE 30, 2001
-------------------------------------------
Operating activities:
Net loss for the year (statement 3) $ (6,640)
Add: Amortization 22,732
-------------
16,092
-------------
Changes in non-cash working capital balances:
Accounts receivable (53,557)
Accounts payable 43,455
Common shares 811,465
-------------
801,363
-------------
Investing activities:
Purchase of capital assets (430,777)
Investment in Logictel Inc. (372,400)
-------------
(803,177)
-------------
Increase (decrease) in cash during the year 14,278
Cash, beginning of year
-------------
Cash, end of year $ 14,278
=============
(See accompanying notes)
2-6.
PARSECOM INC.
-------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
JUNE 30, 2001
-------------
1. Incorporation
-------------
The company was incorporated October 31, 2000 and commenced active
operations in May, 2001. During the period the company acquired certain
assets of a local re-seller of long distance telecommunication services in
consideration for outstanding technical support and services provided by the
company. These financial statements reflect the company's transactions from
date of incorporation to June 30, 2001.
2. Significant accounting principles
---------------------------------
The financial statements of the company have been prepared in accordance
with generally accepted accounting principles. The following are those
principles which are considered to be of particular significance:
a) Capital assets
--------------
Capital assets are recorded in the accounts at cost. They are amortized
over their estimated useful life using the declining balance method at
the following rates:
Computer equipment 3 year straight line
Furniture and fixtures 20%
Leasehold improvements 10 years straight line
Computer software 100%
b) Income taxes
------------
The company records income taxes on a tax allocation basis. Under this
method, the provision for income taxes is determined based on earnings
calculated for financial statement purposes regardless of the fact that
the actual payment of tax may be deferred to future periods as a result
of allowable deductions which can be claimed for income tax purposes.
3. Capital assets
--------------
The details of capital assets are as follows:
2001
-------------------------------------------
Accumulated Net Book
Cost Amortization Value
---- ------------ -----
Computer $ 180,641 $ (10,035) $ 170,606
Furniture and fixtures 65,000 (2,167) 62,833
Leasehold improvements 135,507 (2,258) 133,249
Computer software 49,629 (8,272) 41,357
----------- ------------ -----------
$ 430,777 $ (22,732) $ 408,045
=========== ============ ===========
2-7.
4. Transactions with sole shareholder
----------------------------------
Capital assets
--------------
The capital assets of the company were acquired throughout the period
by way of capital contributions from the shareholder of the company.
Investment in Logictel Inc.
---------------------------
Funds to acquire the company's 50% interest in Logictel Inc. were
provided by a capital contribution by the shareholder of the company.
5. Share capital
-------------
Authorized:
Unlimited number of common shares Unlimited number of class A special
shares Unlimited number of class B special shares Unlimited number of
class C special shares
Issued:
100 common shares $ 100
811,365 class A special shares 811,365
--------------
$ 811,465
==============
6. Investment in Logictel Inc.
---------------------------
During the period the company acquired a 50% interest in Logictel Inc.
a company which holds an internet service provider license in Sudan.
The investment has been recorded at cost. Logictel Inc. is currently in
the pre-operational stage awaiting progressive approvals of the
technical build out plan by the National Telecommunications Authority of
Sudan.
7. Subsequent event
----------------
On February 8, 2002 the company was acquired by Telemax Global
Communications Inc.
2-8.
TELEMAX COMMUNICATIONS INC.
FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
3-i.
TELEMAX COMMUNICATIONS INC.
DECEMBER 31, 2001
CONTENTS
Page
----
REVIEW ENGAGEMENT REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and (Deficit) 3
Statement of Cash Flows 4
Notes to Financial Statements 5-10
3-ii.
[GRAPHIC OMITTED]
QUICK, GREENSPAN
----------------------------------
& RADVANY LLP
CHARTERED ACCOUNTANTS
TERENCE O. ANDERSON, CA
RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610
DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3
JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000
CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225
R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282
www.quick-greenspan.com
REVIEW ENGAGEMENT REPORT
To the Directors of
Telemax Communications Inc.
We have reviewed the balance sheet of Telemax Communications Inc. as at December
31, 2001 and the statements of income, retained earnings and cash flows for the
six-month period then ended. Our review was made in accordance with generally
accepted standards for review engagements and accordingly consisted primarily of
enquiry, analytical procedures and discussion related to information supplied to
us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
/s/ Quick, Greenspan & Radvany LLP
Toronto, Ontario
March 6, 2002
April 27, 2002 CHARTERED ACCOUNTANTS
3-1.
TELEMAX COMMUNICATIONS INC.
BALANCE SHEET
AS AT DECEMBER 31, 2001
ASSETS
December 31, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
CURRENT
Cash and cash equivalents (Note 3(a)) $ 66,463 $ 77,170
Short-term investments - 450,000
Accounts receivable (Note 3(b)) 2,219,598 1,208,947
Inventory (Note 3(c)) 390,168 24,600
Deposits and prepaid expenses 15,000 324,927
Advances to Telemax Global Communications Inc. 30,600 -
Loan receivable - 3,750,000
------------ ------------
2,721,829 5,835,644
FIXED ASSETS (Note 4) 772,110 189,768
------------ ------------
$ 3,493,939 $ 6,025,412
============ ============
LIABILITIES
CURRENT
Bank loans payable (Note 5) $ 205,000 $ 450,000
Accounts payable (Note 2) 2,090,886 1,592,473
Accrued liabilities 87,848 7,500
Deferred revenue (Note 3(h)) 464,333 190,494
Current portion of capital lease obligations (Note6) 50,114 18,574
Current portion of loans payable (Note 7) 83,340 104,156
------------ ------------
2,981,521 2,363,197
CAPITAL LEASE OBLIGATIONS (Note 6) 44,319 25,301
LOANS PAYABLE (Note 7) 118,185 166,680
DIRECTORS' LOANS (Note 8) 1,571,606 1,471,606
------------ ------------
4,715,631 4,026,784
STOCKHOLDERS' EQUITY (DEFICIENCY)
CAPITAL STOCK (Note 9) 251,000 4,001,000
DEFICIT (1,472,692) (2,002,372)
------------ ------------
(1,221,692) 1,998,628
------------ ------------
$3,493,939 $6,025,412
============ ============
APPROVED ON BEHALF OF THE BOARD:
___________________ Director ____________________ Director
SUBJECT TO REVIEW ENGAGEMENT REPORT
SEE ACCOMPANYING NOTES
3-2.
TELEMAX COMMUNICATIONS INC.
STATEMENT OF INCOME AND (DEFICIT)
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001
AND YEAR ENDED JUNE 30, 2001
Three months Six months Year
Ended Ended Ended
December 31 December 31, June 30,
2001 2001 2001
---- ---- ----
(Unaudited) (Unaudited) (Audited)
SALES $ 4,309,129 $ 8,888,276 $ 12,152,410
COST OF SALES (Note 2) 3,171,219 7,161,620 10,815,015
------------ ------------ ------------
GROSS PROFIT 1,137,910 1,726,656 1,337,395
EXPENSES
Administrative salaries and benefits 194,864 375,294 437,500
Sales salaries and commissions 183,937 360,498 425,334
General and administrative 57,499 98,988 164,689
Depreciation 77,311 92,066 58,183
Rent 32,835 56,835 85,382
Automotive expenses 26,989 50,945 78,216
Legal and accounting 38,179 70,685 112,669
Interest and bank charges 19,752 43,656 77,548
Consulting fees 10,323 18,233 23,354
Research and development 43,093 43,093 206,841
Bad debts 24,550 24,650 226,491
Telephone 8,323 22,750 55,753
Advertising and promotion 8,388 21,863 48,794
Foreign exchange loss (gain) (8,581) 12,913 4,446
Repairs and maintenance - 5,749 11,568
Travel 2,094 3,919 10,872
Insurance - 2,447 1,632
Equipment rental 1,600 1,600 7,664
Penalties and interest - - 40,830
------------ ------------ ------------
721,156 1,306,184 2,077,766
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 416,754 420,472 (740,371)
OTHER INCOME
Other income 101,518 109,208 1,912
------------ ------------ ------------
NET INCOME (LOSS) 518,272 529,680 (738,459)
DEFICIT, beginning of period (1,990,964) (2,002,372) (1,263,913)
------------ ------------ ------------
DEFICIT, end of period $ (1,472,692) $ (1,472,692) $ (2,002,372)
============= ============ ============
SUBJECT TO REVIEW ENGAGEMENT REPORT
SEE ACCOMPANYING NOTES
3-3.
TELEMAX COMMUNICATIONS INC.
STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001
AND YEAR ENDED JUNE 30, 2001
Six months Year
Ended Ended
December 31, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 529,680 $ (738,459)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 92,066 58,183
Assets revaluation (94,200) -
------------ ------------
Cash flow from (used in) operations 527,546 (680,276)
CHANGE IN ASSETS AND LIABILITIES:
Decrease (increase) in marketable securities 450,000 (450,000)
(Increase) in accounts receivable (1,010,651) (654,308)
(Increase) decrease in inventories (365,568) 47,776
Decrease (increase) in prepaid expenses 309,927 (289,927)
(Increase)in advances to Telemax
Communications Inc. (30,600) -
Increase in accounts payable 498,413 778,991
Increase in accrued liabilities 80,349 7,500
Increase in deferred revenue 273,839 190,494
(Decrease) increase in current portion of
long-term loans payable (20,816) 54,156
Increase in current portion of capital
lease obligations 31,540 -
------------ ------------
Net cash provided by operating activities 743,979 (995,594)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in share capital - 250,000
(Repayment) increase in bank lines of credit (245,000) 155,000
(Repayment) of bank loans (48,495) -
Repayment of long-term loans payable - 151,927
Increase (decrease) in capital lease obligations,
less current portion 19,018 (16,875)
Increase in directors' loans 100,000 663,989
------------ ------------
Net cash provided by financing activities (174,477) 1,204,041
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (580,209) (55,882)
------------ ------------
Net cash used in investing activities (580,209) (55,882)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,707) 152,565
NET CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,170 (75,395)
------------ ------------
NET CASH AND CASH EQUIVALENTS, END OF PERIOD $ 66,463 $ 77,170
============ ============
SUBJECT TO REVIEW ENGAGEMENT REPORT
SEE ACCOMPANYING NOTES 3-4.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
1. ORGANIZATION
The Company was incorporated under the laws of the province of Ontario
on May 12, 1997. It manufactures and is a distributor of prepaid
telephone cards operating under the trade name Telemax Communications
Inc.
2. GOING CONCERN AND MANAGEMENT PLAN
In November 2000, the Company changed its relationship with its primary
service provider from a joint venture partnership to one of
customer/supplier. The Company has identified errors in billings from
its primary service provider in the period from July through September
2001, by analyzing Call Detail Reports supplied by its service provider.
Because Call Detail Reports have not been made available for the period
November 2000 through June 2001, management is not able to quantify the
amount of over-billings in this period. However, based upon its current
studies and discussions with its primary service provider, management
has estimated that over-billings booked to cost of sales for the year
ended June 30, 2001 approximates $1,800,000. The final amount has to be
negotiated with its service provider, therefore management has reduced
cost of sales and trade accounts payable for the year ended June 30,
2001 by $1,250,000. As negotiations with its service provider is likely
going to independent arbitration and the Company is still experiencing
service billing problems, management has made reductions to cost of
sales and accounts payable in the six-month period ended December 31,
2001 of 22%, $2,058,297. Further, management believes that it now
controls its telephone services costs, so that gross margins are now
restored, and the Company's operations should generate a positive cash
flow.
As a result of failure of the Company's former parent company, Comtel
Communications Inc., to meet its obligations under its promissory note,
the Company was unable to implement its strategic plan which was
designed to expand its sales and marketing activities, implement a
switching facility to reduce cost of carrier and service bureau,
diversify its product line, improve its profit margin and stabilize its
sales. Futhermore, projects undertaken and started, assuming
availability of funds, to implement its strategic plan such as hiring
sales staff, negotiating with carriers, purchasing switch, signing lease
agreement for a switching facility had to be cancelled or reversed.
These resulted in a major loss and drain in the capital available to the
Company to service its operation. As a result, the Company was not able
to meet its projected sales and profit estimates.
Over the last six months, management has taken the following actions,
which has improved profitability:
3-5.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
a) Access Cost Reduction: a new network has been implemented in
September 2001, which reduces cost, by as much as 70%, of access to
switch from major population centers. The average access cost has been
reduced from $0.0240 to $0.0089, and in high volume areas, such as
British Columbia, from $0.0380 to $0.0100. In the four-month period
September to December 2001, the Company had a total of 67,672,000 access
minutes from these population centers for a total cost of $717,820. The
cost of this volume of access minutes prior to the implementation of the
new network would have been $1,879,194 resulting in a net saving of
$1,161,374, in the four-month period.
b) Implementaion of VOIP (Voice Over Internet Protcol) Gateways:
the Company has phased in its implementation of VOIP gateways to
Argentina, Brazil, China, Iran and Mexico from September to December 31,
2001. Cost savings to these countries range from 4 cents to 8 cents per
minute. The VOIP gateway to China was implemented first in September
2001, which has totalled 1,200,000 minutes in the four-month ended
December 31, 2001 for a cost savings of $48,000. Cost savings to Mexico
for the two- month period ended December 31, 2001 approximates $30,000.
The full benefits of VOIP gateways will be reflected in bottom line
improvements of ongoing operations.
c) Better Program Management: management has put extensive effort
on profit analysis of its programs, and has taken action to eliminate
losses, and once losses are discovered, immediately increasing gross
margins. Management now has procedures in place to ensure profitability
of all its routes by daily monitoring of profit and loss to all
destinations for all programs.
d) Elimination of Errors: management has taken action to discover
and eliminate any errors which may occur in program set up or carrier
cost setting. This has been the major area where the Company paid
significant large amount of carrier cost in the past.
Apart from the foregoing, management has taken action to pursue other
sources of capital such as additional equity financing, debt financing
or make arrangements with its primary service provider to allow time for
operations to recover. The financial statements do not include any
adjustments that might result from the outcome of this going concern
uncertainty. Management's plans over the next twelve-month period are to
vigorously control its telephone services costs/gross margins, and
further develop its revenue growth through strategic alliances.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. Outlined below are
those policies considered particularly significant for the Company.
3-6.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
(a) Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash equivalents
consist of money market funds and demand deposits in banks, purchased
with a maturity of three months or less. The Company has no such items
at December 31, 2001 and June 30, 2001.
(b) Accounts receivable.
The Company sells prepaid phonecards both wholesale and retail. Deposits
received from new wholesale accounts substantially protected the Company
from bad debts, therefore no provision was considered necessary in prior
years. As the Company continues to grow, it now considers it necessary
to provide for bad debts. Provisions for bad debts are $250,361 at
December 31, 2001 and $237,382 at June 30, 2001.
(c) Inventory
Inventory of activated and unactivated prepaid telephone cards is valued
at the lower of cost and market.
(d) Fair value of financial instruments
The Company estimates that the fair value of all financial instruments
at December 31, 2001 and June 30, 2001 does not differ materially from
the aggregate carrying values of its financial instruments recorded in
the balance sheet. The estimated fair value of amounts of receivables,
accounts payable and accrued liabilities approximate fair value due to
their short-term nature. Considerable judgement is necessarily required
in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
(f) Fixed Assets
Fixed assets are recorded at cost. Expenditures for normal maintenance
and repairs are charged to expense as incurred. Depreciation is provided
annually at rates calculated to write-off the assets over the estimated
useful lives of the related assets. The basis of calculations has been
adjusted to reflect those reported in the parent company and such
changes have no material difference to accumulated depreciation.
Depreciation expense was $92,066 for the six-month period ended December
31, 2001 and $58,183 for the year ended June 30, 2001.
Computer hardware - 13 years 30%per annum on reducing balance
Computer software - 5 years 20%per annum on straight line
Furniture and fixtures - 20 years 20%per annum on reducing balance
Office equipment under
capital lease - 20 years 20%per annum on reducing balance
Telephone equipment,
switches and gateways - 16 years 25%per annum on reducing balance
3-7.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
(g) Income taxes
The Company has filed corporate federal and provincial income tax
returns through April 30, 2001, and has net operating loss carryforwards
of $1,862,741available to offset financial statement or tax return
taxable income in future periods:
Year Loss Expires
---- ---- -------
2001 $ 909,819 2008
2000 $ 621,244 2007
1999 $ 163,923 2006
1998 $ 167,755 2005
(h) Deferred revenue
The Company has estimated the amount of revenue it has collected from
prepaid phonecards that relates to use of telephone services after
December 31, 2001 is $464,333, and the estimated amount collected at
June 30, 2001 is $190,494.
4. FIXED ASSETS
Net Net
Accumulated December 31, June 30,
Cost Depreciation 2001 2001
---- ------------ ---- ----
Computer Hardware, Switches and Gateways $ 734,534 $ 117,677 $ 616,857 $ 95,678
Computer Software 31,421 31,077 344 356
Equipment 73,484 21,490 51,994 37,453
Equipment under Capital Lease 125,312 29,310 96,002 48,600
Furniture and Fixtures 11,957 5,044 6,913 7,681
--------- ------------ ----------- ----------
$ 976,708 $ 204,598 $ 772,110 $ 189,768
========= ============ =========== ==========
5. BANK LOANS PAYABLE
The Company's bankers have provided the Company with a line of credit
facility of $300,000 (2001 - $450,000), with interest at the bank's
prime plus 1.25%.
6. CAPITAL LEASE OBLIGATIONS
The Company has leased office equipment for a five-year term maturing
October 27, 2004 and repayable quarterly at $4,644 plus interest at 6%.
The Company has the option to buy the equipment after 20 months, June
28, 2001, for 48% of purchase price, $34,992. The option to buy has not
been exercised.
The Company has leased telephone equipment for a two-year term maturing
October 31, 2003 and repayable $2,580 monthly.
3-8.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
7. LOANS PAYABLE
December 31, June 30,
2001 2001
---- ----
The Company was provided with a Small $ - $ 20,836
Business Loan by its bankers in the
amount of $250,000, with interest at
bank's prime plus 2.5%, which is
secured by capital assets. Repayment is
$4,167 monthly, maturing September 30, 2001.
The Business Development Bank of Canada 201,525 250,000
advanced the Company $250,000 in the year
to purchase telephone equipment. The loan
is at the bank's floating rate plus 2.0%
and secured by telephone equipment totaling
$488,000. Principal repayment of the loan
is scheduled as one payment of $6,925 on
July 31, 2001, plus 35 equal monthly payments
of $6,945 plus interest on the outstanding
balance. The balance of the telephone
equipments' purchase price $238,000 is being
contributed from working capital. ----------- -----------
Total loans payable 201,525 270,836
Less: current portion due within one year 83,340 104,156
----------- -----------
$ 118,185 $ 166,680
=========== ===========
8. DIRECTORS' LOANS
Directors have advanced non-interest bearing loans of $1,571,606 (2001
- $1,471,606), which are without terms of repayment, and therefore are
reported as long-term. Of these loans from directors $500,000 is
postponed to bank loans.
9. CAPITAL STOCK
Authorized
Unlimited number of no par value common shares
Unlimited number of no par value Class "A" shares
Stated Capital
December 31, June 30,
2001 2001
---- ----
692,500 common shares $ 251,000 $ 4,001,000
============= ============
3-9.
TELEMAX COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
On July 31, 2001 the Company increased its issued share capital to
1,000,000 common shares by issuing 999,000 common shares from treasury,
of which 691,500 common shares were issued to existing shareholders and
307,500 common shares were issued to Comtel Comunications Inc. in
exchange for a promissory note in amount of $4,000,000. The issuance of
these shares to Comtel Communications Inc. together with sales of
307,500 common shares from existing shareholders in exchange for cash
and shares of Comtel Communications Inc. gave Comtel Communications Inc.
61.5% interest and control.
In October 2001 an agreement was reached with Comtel Communications Inc.
to surrender all its shares in the Company, of which 307,500 common
shares were cancelled, in exchange for cancelling its promissory note.
The Company has agreed that should it obtain new funding in excess of
$1,000,000 it will pay Comtel Communications Inc. $125,000, maturing in
two years.
3-10.
PARSECOM INC.
FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
4-i.
PARSECOM INC.
DECEMBER 31, 2001
CONTENTS
Page
----
FINANCIAL STATEMENTS
Balance Sheet 1
Statement of Income and (Deficit) 2
Statement of Cash Flows 3
Notes to Financial Statements 4-5
4-ii.
PARSECOM INC.
BALANCE SHEET
AS AT DECEMBER 31, 2001
ASSETS
December 31, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
CURRENT
Cash and cash equivalents $ 55,482 $ 14,278
Accounts receivable 798,627 53,557
Deposits and prepaid expenses 6,184 -
------------ ------------
860,293 67,835
CAPITAL ASSETS ASSETS (Notes 2 and 3) 340,294 408,045
INVESTMENTS (Note 5) 421,510 372,400
------------ ------------
$ 1,622,097 $ 848,280
============ ============
LIABILITIES
CURRENT
Accounts payable (Note 2) $ 357,233 $ 4,538
Accrued liabilities 76,381 38,917
------------ ------------
433,614 43,455
------------ ------------
433,614 43,455
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 811,465 811,465
RETAINED EARNINGS (DEFICIT) 377,018 (6,640)
1,188,483 804,825
------------ ------------
$ 1,622,097 $ 848,280
============ ============
APPROVED ON BEHALF OF THE BOARD:
________________________ Director _________________________ Director
SEE ACCOMPANYING NOTES
4-1.
PARSECOM INC.
STATEMENT OF INCOME AND (DEFICIT)
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001
AND YEAR ENDED JUNE 30, 2001
Six months Year
Ended Ended
December 31, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
SALES $ 1,660,262 $ 38,161
COST OF SALES 1,046,721 4,538
------------ ------------
GROSS PROFIT 613,541 33,623
EXPENSES
General and administrative 112,964 3,151
Sales salaries and commissions 43,284 -
Rent 30,791 23,800
Depreciation 24,000 22,732
Consulting fees 18,844 9,295
Telephone - 7,034
Interest and bank charges - 19
------------ ------------
229,883 66,031
------------ ------------
INCOME (LOSS) FROM OPERATIONS 383,658 (32,408)
OTHER INCOME
Other income - 25,768
------------ ------------
NET INCOME (LOSS) 383,658 (6,640)
(DEFICIT) RETAINED EARNINGS, beginning of period (6,640) -
------------ ------------
DEFICIT, end of period $ 377,018 $ (6,640)
============ ============
SEE ACCOMPANYING NOTES
4-2.
PARSECOM INC.
STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001
AND YEAR ENDED JUNE 30, 2001
Six months Year
Ended Ended
December 31, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 383,658 $ (6,640)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 24,000 22,732
------------ ------------
Cash flow from (used in) operations 407,658 16,092
CHANGE IN ASSETS AND LIABILITIES:
(Increase) in accounts receivable (745,070) (53,557)
(Increase) decrease in prepaid expenses (6,184) -
Increase in accounts payable 352,694 4,538
Increase in accrued liabilities 37,465 38,917
------------ ------------
Net cash provided by operating activities 46,563 5,990
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in share capital - 811,465
Net cash provided by financing activities - 811,465
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures 43,751 (430,777)
Decrease (increase) in investments (49,110) (372,400)
------------ ------------
Net cash used in investing activities (5,359) (803,177)
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,204 14,278
NET CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,278 -
------------ ------------
NET CASH AND CASH EQUIVALENTS, END OF PERIOD $ 55,482 $ 14,278
============ ============
SEE ACCOMPANYING NOTES
4-3.
PARSECOM INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 31, 2001
1. Incorporation
-------------
The Company was incorporated October 31, 2000 and commenced active
operations in May, 2001.
2. Significant accounting principles
---------------------------------
The financial statements of the company have been prepared in accordance
with generally accepted accounting principles. The following are those
principles which are considered to be of particular significance.
(a) Capital Assets
--------------
Capital assets are recorded in the accounts at costs. They are amortized
over their estimated useful life using the declining balance method at
the following rates.
Computer equipment 3 years straight line
Furniture and fixtures 20 %
Leashold improvements 10 years straight line
Computer software 100%
(b) Income taxes
------------
The company records income taxes on a tax allocation basis. Under this
method, the provision for income taxes is determined based on earnings
calculated for financial statements purposes regardless of the fact that
the actual payment of tax be deferred to future periods as a result of
allowable deductions which can be claimed for income tax purposes.
3. Capital assets
--------------
Net Net
Accumulated December 31, June 30,
Cost Amortization 2001 2001
---- ------------- ---- ----
Computer $ 131,721 $ 14,745 $ 116,976 $ 170,606
Furniture and Fixtures 68,293 8,450 59,843 62,833
Leasehold Improvements 135,507 9,033 126,474 133,249
Computer Software 49,629 12,628 37,001 41,357
--------- ------------- ----------- ---------
$ 385,150 $ 44,856 $ 340,294 $ 408,045
========= ============= =========== =========
4-4.
4. Share capital
-------------
Authorized:
Unlimited number of common shares
Unlimited number of class "A" special shares
Unlimited number of class "B" special shares
Unlimited number of class "C" special shares
Issued:
December 31, June 30,
2001 2001
---- ----
100 common shares 100 100
811,365 class A special shares 811,365 811,365
--------- ---------
$ 811,465 $ 811,465
========= =========
5. Investment in Logictel Inc.
---------------------------
During the period ended June 30, 2001, the company acquired a 50%
interest in Logictel Inc. a company which holds an internet service
provider licence in Sudan. The investment has been recorded at cost.
4-5.
TELEMAX GLOBAL COMMUNICATIONS INC.
BALANCE SHEET
(Unaudited)
DECEMBER 31, 2001
5-i.
TELEMAX GLOBAL COMMUNICATIONS INC.
DECEMBER 31, 2001
CONTENTS
Page
----
REVIEW ENGAGEMENT REPORT 1
Balance Sheet 2
Notes to Balance Sheet 3
5-ii.
[GRAPHIC OMITTED]
QUICK, GREENSPAN
----------------------------------
& RADVANY LLP
CHARTERED ACCOUNTANTS
TERENCE O. ANDERSON, CA
RETIRED/COUNSEL 90 EGLINTON AVENUE EAST, SUITE 610
DAVID F. QUICK, B.Sc., CA TORONTO, ONTARIO M4P 2Y3
JERROLD P. GREENSPAN B.Comm, CA TELEPHONE (416) 487-2000
CLARA M. RADVANY C.M.A. CA FACSIMILE (416) 487-5225
R. CHARLES FURNIVALL CA TOLL FREE 1-800 387-9282
www.quick-greenspan.com
REVIEW ENGAGEMENT REPORT
To the Directors of
Telemax Global Communications Inc.
We have reviewed the balance sheet of Telemax Global Communications Inc. as at
December 31, 2001 . Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
/s/ Quick, Greenspan & Radvany LLP
Toronto, Ontario
April 19, 2002 CHARTERED ACCOUNTANTS
5-1.
TELEMAX GLOBAL COMMUNICATIONS INC.
BALANCE SHEET
AS AT DECEMBER 31, 2001
ASSETS
December 31,
2001
----
(Unaudited)
CURRENT
Accounts receivable $ 1,000
-----------
$ 1,000
===========
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 2) $ 1,000
-----------
$ 1,000
===========
APPROVED ON BEHALF OF THE BOARD:
__________________________ Director ______________________ Director
5-2.
TELEMAX GLOBAL COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. ORGANIZATION
The Company was incorporated under the laws of the province of Ontario
on October 30, 2001. It has remained inactive since incorporation.
2. CAPITAL STOCK
Authorized
Unlimited number of no par value common shares
Unlimited number of no par value preference shares
Stated Capital
December 31,
2001
-------------
1,000,000 common shares $ 1,000
=============
5-3.
RECONCILIATION SCHEDULES
OF CANADIAN CURRENCY AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO US CURRENCY AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES FOR THE FINANCIAL STATEMENTS OF
TELEMAX COMMUNICATIONS, INC.
PARSECOM, INC.
TELEMAX GLOBAL COMMUNICATIONS, INC. - ONTARIO
R-1.
TELEMAX COMMUNICATIONS INC.
BALANCE SHEETS
AS AT DECEMBER 31, 2001 AND JUNE 30, 2001
RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP
December 31, 2001 June 30, 2001
--------------------------------------- ---------------------------------------
CDN$ FX US$ CDN$ FX US$
---- -- --- ---- -- ---
ASSETS (Unaudited) (0.62783) (Audited) (0.66050)
----------- ---------
CURRENT
Cash and cash equivalents $ 66,463 $ (24,736) $ 41,727 $ 77,170 $ (26,199) $ 50,971
Short-term investments 0 0 0 450,000 (152,775) 297,225
Accounts receivable 2,219,598 (826,068) 1,393,530 1,208,947 (410,438) 798,509
Inventory 390,168 (145,209) 244,959 24,600 (8,352) 16,248
Deposits and prepaid expenses 15,000 (5,583) 9,417 324,927 (110,313) 214,614
Advances to Organik Technologies, Inc. 30,600 (11,388) 19,212 0 0 0
Loan receivable 0 0 0 3,750,000 (3,750,000) 0
----------- ----------- ----------- ----------- ----------- -----------
2,721,829 (1,012,983) 1,708,846 5,835,644 (4,458,076) 1,377,568
FIXED ASSETS 772,110 (287,356) 484,754 189,768 (64,426) 125,342
----------- ----------- ----------- ----------- ----------- -----------
$ 3,493,939 $(1,300,339) $ 2,193,600 $ 6,025,412 $(4,522,502) $ 1,502,910
=========== =========== =========== =========== =========== ===========
LIABILITIES
CURRENT
Bank indebtedness $ -- $ -- $ -- $ -- $ -- $ --
Bank loans payable 205,000 (76,295) 128,705 450,000 (152,775) 297,225
Accounts payable 2,090,886 (778,165) 1,312,721 1,592,474 (540,644) 1,051,830
Accrued liabilities 87,847 (32,694) 55,153 7,499 (2,546) 4,953
Deferred revenue 464,333 (172,811) 291,522 190,494 (64,673) 125,821
Current portion of capital
lease obligations 50,114 (18,651) 31,463 18,574 (6,306) 12,268
Current portion of loans payable 83,340 (31,017) 52,323 104,156 (35,361) 68,795
----------- ----------- ----------- ----------- ----------- -----------
2,981,520 (1,109,632) 1,871,888 2,363,197 (802,305) 1,560,892
CAPITAL LEASE OBLIGATIONS 44,319 (16,494) 27,825 25,301 (8,590) 16,711
LOANS PAYABLE 118,185 (43,985) 74,200 166,680 (56,588) 110,092
DIRECTORS' LOANS 1,571,606 (584,905) 986,701 1,471,606 (499,610) 971,996
----------- ----------- ----------- ----------- ----------- -----------
4,715,630 (1,755,016) 2,960,614 4,026,784 (1,367,093) 2,659,691
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock 251,000 (81,466) 169,534 4,001,000 (1,354,591) 2,646,409
Subscriptions receivable 0 0 0 0 (2,476,875) (2,476,875)
Accumulated deficit (1,472,691) 462,031 (1,010,660) (2,002,372) 654,189 (1,348,183)
Foreign exchange 0 74,112 74,112 0 21,868 21,868
----------- ----------- ----------- ----------- ----------- -----------
$ 3,493,939 $(1,300,339) $ 2,193,600 $ 6,025,412 $(4,522,502) $ 1,502,910
=========== =========== =========== =========== =========== ===========
Notes:
1) Differences between Canadian and US GAAP. At June 30, 2001, Canadian
GAAP reports the unpaid balance of the promissory for issuance of
stock in current assets CDN$3,750,000 and capital stock at the
grossed-up amount. US GAAP requires the unpaid balance of the
promissory note to be reported as a reduction of capital stock,
thereby reporting increases in capital stock on a cash basis.
2) Foreign currency translation: The Company is presently Canadian based,
and as such carries out its operations in Canada, maintaining its
books using Canadian dollars. The Company's books have been translated
into U.S. dollars using the current rate method. Gains and losses on
foreign currency transactions are included in the balance sheets and
statements of cash flows as Foreign Exchange.
R-2.
TELEMAX COMMUNICATIONS INC.
INCOME STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND YEAR ENDED JUNE 30, 2001
RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP
Six Months Ended Year Ended
December 31, 2001 June 30, 2001
--------------------------------------- ----------------------------------------
CDN$ FX US$ CDN$ FX US$
---- -- --- ---- -- ---
(Unaudited) (0.63722) (Audited) (0.65824)
SALES $ 8,888,276 $(3,224,489) $ 5,663,787 $ 12,152,410 $(4,153,208) $ 7,999,202
COST OF SALES 7,161,620 (2,598,093) 4,563,527 10,815,015 (3,696,140) 7,118,875
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT 1,726,656 (626,396) 1,100,260 1,337,395 (457,068) 880,327
Expenses
Salaries and benefits, administration 375,294 (136,149) 239,145 437,500 (149,520) 287,980
Salaries and benefits, sales 0 0 0 203,746 (69,632) 134,114
Bad debts 24,650 (8,943) 15,707 226,491 (77,406) 149,085
Sales commissions 360,498 (130,781) 229,717 221,588 (75,730) 145,858
Research and development 43,093 (15,633) 27,460 206,841 (70,690) 136,151
General and administrative 98,988 (35,911) 63,077 164,689 (56,284) 108,405
Legal and accounting 70,685 (25,643) 45,042 112,669 (38,506) 74,163
Rent 56,835 (20,619) 36,216 85,382 (29,180) 56,202
Automotive expenses 50,945 (18,482) 32,463 78,216 (26,731) 51,485
Interest and bank charges 43,656 (15,838) 27,818 77,548 (26,503) 51,045
Depreciation 92,066 (33,400) 58,666 58,183 (19,885) 38,298
Telephone 22,750 (8,253) 14,497 55,753 (19,054) 36,699
Advertising and promotion 21,863 (7,931) 13,932 48,794 (16,676) 32,118
Penalties and interest 0 0 0 40,830 (13,954) 26,876
Consulting fees 18,233 (6,615) 11,618 23,354 (7,981) 15,373
Repairs and maintenance 5,749 (2,086) 3,663 11,568 (3,953) 7,615
Travel 3,919 (1,422) 2,497 10,872 (3,716) 7,156
Equipment rental 1,600 (580) 1,020 7,664 (2,619) 5,045
Foreign exchange loss 12,913 (4,685) 8,228 4,446 (1,519) 2,927
Insurance 2,447 (888) 1,559 1,632 (558) 1,074
----------- ----------- ----------- ----------- ----------- -----------
1,306,184 (473,857) 832,327 2,077,766 (710,097) 1,367,669
----------- ----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS 420,472 (152,539) 267,933 (740,371) 253,029 (487,342)
OTHER INCOME
Other income 109,208 (39,618) 69,590 1,912 (653) 1,259
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 529,680 $ (192,157) $ 337,523 $ (738,459) $ 252,376 $ (486,083)
=========== =========== =========== =========== =========== ===========
Notes:
1) There are no differences between Canadian and US GAAP in the Income
Statements.
2) Foreign currency translation: The Company is presently Canadian based,
and as such carries out its operations in Canada, maintaining its books
using Canadian dollars. The Company's books have been translated into
U.S. dollars using the current rate method. Gains and losses on foreign
currency transactions are included in the balance sheets and statements
of cash flows as Foreign Exchange.
R-3.
PARSECOM INC.
BALANCE SHEETS
AS AT DECEMBER 31, 2001 AND JUNE 30, 2001
RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP
December 31, 2001 June 30, 2001
--------------------------------------- ---------------------------------------
CDN$ FX US$ CDN$ FX US$
---- -- --- ---- -- ---
ASSETS (Unaudited) (0.62783) (Audited) (0.66050)
----------- ---------
CURRENT
Cash and cash equivalents $ 55,482 $ (20,649) $ 34,833 $ 14,278 $ (4,847) $ 9,431
Short-term investments 0 0 0 0 0 0
Accounts receivable 798,627 (297,225) 501,402 53,557 (18,183) 35,374
Inventory 0 0 0 0 0 0
Deposits and prepaid expenses 6,184 (2,301) 3,883 0 0 0
Advances to Organik Technologies, Inc. 0 0 0 0 0 0
Loan receivable 0 0 0 0 0 0
--------------------------------------- ---------------------------------------
860,293 (320,175) 540,118 67,835 (23,030) 44,805
FIXED ASSETS 340,294 (126,647) 213,647 408,045 (138,531) 269,514
INVESTMENTS 421,510 (156,873) 264,637 372,400 (126,430) 245,970
--------------------------------------- ---------------------------------------
$ 1,622,097 $ (603,696) $ 1,018,401 $ 848,280 $ (287,991) $ 560,289
======================================= =======================================
LIABILITIES
CURRENT
Bank loans payable $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Accounts payable 357,232 (132,951) 224,281 4,538 (1,541) 2,997
Accrued liabilities 76,382 (28,427) 47,955 38,917 (13,212) 25,705
Deferred revenue 0 0 0 0 0 0
Current portion of capital lease obligations 0 0 0 0 0 0
Current portion of loans payable 0 0 0 0 0 0
--------------------------------------- ---------------------------------------
433,614 (161,378) 272,236 43,455 (14,753) 28,702
CAPITAL LEASE OBLIGATIONS 0 0 0 0 0 0
LOANS PAYABLE 0 0 0 0 0 0
DIRECTORS' LOANS 0 0 0 0 0 0
--------------------------------------- ---------------------------------------
433,614 (161,378) 272,236 43,455 (14,753) 28,702
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock 811,465 (278,487) 532,978 811,465 (278,487) 532,978
Accumulated deficit 377,018 (136,914) 240,104 (6,640) 2,269 (4,371)
Foreign exchange 0 (26,917) (26,917) 0 2,980 2,980
--------------------------------------- ---------------------------------------
$ 1,622,097 $ (603,696) $ 1,018,401 $ 848,280 $ (287,991) $ 560,289
======================================= =======================================
Notes:
1) There are no differences between Canadian and US GAAP.
2) Foreign currency translation:
The Company is presently Canadian based, and as such carries out its
operations in Canada, maintaining its books using Canadian dollars.
The Company's books have been translated into U.S. dollars using the
current rate method. Gains and losses on foreign currency transactions
are included in the balance sheets and statements of cash flows as
Foreign Exchange.
R-4.
PARSECOM INC.
INCOME STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2001 AND
EIGHT-MONTH PERIOD ENDED JUNE 30, 2001
RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP TO US DOLLAR AND US GAAP
Six Months Ended Eight Months Ended
December 31, 2001 June 30, 2001
---------------------------------------- -------------------------------------
CDN$ FX US$ CDN$ FX US$
---- -- --- ---- -- ---
(Unaudited) (0.63722) (Audited) (0.65824)
SALES $ 1,660,262 $ (602,310) $ 1,057,952 $ 38,161 $ (13,042) $ 25,119
COST OF SALES 1,046,721 (379,729) 666,992 4,538 (1,551) 2,987
----------- ---------- ------------ --------- ---------- ---------
GROSS PROFIT 613,541 (222,580) 390,961 33,623 (11,491) 22,132
Expenses
Salaries and benefits, administration 0 0 0 0 0 0
Salaries and benefits, sales 0 0 0 0 0 0
Bad debts 0 0 0 0 0 0
Sales commissions 43,284 (15,703) 27,581 0 0 0
Research and development 0 0 0 0 0 0
General and administrative 112,964 (40,981) 71,983 3,151 (1,077) 2,074
Legal and accounting 0 0 0 0 0 0
Rent and occupancy costs 30,791 (11,170) 19,621 23,800 (8,134) 15,666
Automotive expenses 0 0 0 0 0 0
Interest and bank charges 0 0 0 19 (6) 13
Depreciation 24,000 (8,707) 15,293 22,732 (7,769) 14,963
Telephone 0 0 0 7,034 (2,404) 4,630
Advertising and promotion 0 0 0 0 0 0
Penalties and interest 0 0 0 0 0 0
Consulting fees 18,844 (6,836) 12,008 9,295 (3,177) 6,118
Repairs and maintenance 0 0 0 0 0 0
Travel 0 0 0 0 0 0
Equipment rental 0 0 0 0 0 0
Foreign exchange loss 0 0 0 0 0 0
Insurance 0 0 0 0 0 0
----------- ---------- ------------ --------- ---------- ---------
229,883 (83,397) 146,486 66,031 (22,567) 43,464
----------- ---------- ------------ --------- ---------- ---------
LOSS FROM OPERATIONS 383,658 (139,183) 244,475 (32,408) 11,076 (21,332)
OTHER INCOME
Other income 0 0 0 25,768 (8,806) 16,962
----------- ---------- ------------ --------- ---------- ---------
NET INCOME (LOSS) $ 383,658 $ (139,183) $ 244,475 $ (6,640) $ 2,269 $ (4,371)
=========== ========== ============ ========= ========== =========
Notes:
1) There are no differences between Canadian and US GAAP.
2) Foreign currency translation:
The Company is presently Canadian based, and as such carries out its
operations in Canada, maintaining its books using Canadian dollars. The
Company's books have been translated into U.S. dollars using the
current rate method. Gains and losses on foreign currency transactions
are included in the balance sheets and statements of cash flows as
Foreign Exchange.
R-5.
TELEMAX GLOBAL COMMUNICATIONS INC.
BALANCE SHEET
AS AT DECEMBER 31, 2001
RECONCILIATION FROM CANADIAN DOLLAR AND CANADIAN GAAP
TO US DOLLAR AND US GAAP
December 31, 2001
----------------------------------------
CDN$ FX US$
---- -- ---
ASSETS (Unaudited) (0.62783)
-----------
CURRENT
Cash and cash equivalents $ 0 $ 0 $ 0
Short-term investments 0 0 0
Accounts receivable 1,000 (1,000) 0
Inventory 0 0 0
Deposits and prepaid expenses 0 0 0
Advances to Organik Technologies, Inc. 0 0 0
Loan receivable 0 0 0
----------------------------------------
1,000 (1,000) 0
FIXED ASSETS 0 0 0
INVESTMENTS 0 0 0
----------------------------------------
$ 1,000 $ (1,000) $ 0
========================================
LIABILITIES
CURRENT
Bank loans payable $ 0 $ 0 $ 0
Accounts payable 0 0 0
Accrued liabilities 0 0 0
Deferred revenue 0 0 0
Current portion of capital lease obligations 0 0 0
Current portion of loans payable 0 0 0
----------------------------------------
0 0 0
CAPITAL LEASE OBLIGATIONS 0 0 0
LOANS PAYABLE 0 0 0
DIRECTORS' LOANS 0 0 0
----------------------------------------
0 0 0
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock 1,000 (371) 629
Subscriptions receivable 0 (628) (628)
Accumulated deficit 0 0 0
Foreign exchange 0 (1) (1)
----------------------------------------
$ 1,000 $ (1,000) $ 0
========================================
Notes:
1) There are no differences between Canadian and US GAAP.
2) Foreign currency translation:
The Company is presently Canadian based and, although it is inactive,
maintains its books using Canadian dollars. The Company's books have
been translated into U.S. dollars using the current rate method. Gains
and losses on foreign currency transactions are included in the
balance sheet as Foreign Exchange.
R-6.
PROFORMA FINANCIAL INFORMATION
PF-i.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited condensed combining pro forma financial statements ("the
pro forma combining financial statements") and explanatory notes have been
prepared and give effect to the Plan and Agreement of Reorganization
("Reorganization Agreement") between Organik Technologies, Inc. and Telemax
Global Communications, Inc.-Ontario as a reverse acquistion and has been
accounted for as a recapitalization of Telemax Global Communications, Inc. -
Ontario. Telemax Global Communications, Inc. - Ontario is the acquiring
enterprise for purposes of accounting for the reverse acquisition, with Organik
Technologies, Inc. as the legal entity for reporting purposes. The
Reorganization Agreement was entered into as of November 16, 2001 and was
subsequently amended on February 16, 2002.
Telemax Global Communications, Inc.-Ontario is a Canadian company and on
February 8, 2002, acquired 100% of two Canadian operating subsidiaries, Telemax
Communications, Inc. and Parsecom, Inc. In addition, and in conjuction with the
amendment to the Reorganization Agreement, effective February 16, 2002, Organik
Technologies, Inc. changed its name to Telemax Global Communications, Inc. Since
none of the acquisition transactions had taken place as of the dates of the
combining proforma financial statements, each of the respective entities has
been shown separately.
Currently, the year ends for Telemax Global Communications, Inc.-Ontario,
Telemax Communications, Inc. and Parsecom, Inc. are June 30 with July 31 being
the year end for Telemax Global Communications, Inc. (formerly Organik
Technologies, Inc.). No amounts have been reflected in the June 30, 2001, pro
forma combining financial statements for Telemax Global Communications,
Inc.-Ontario since it was not incorporated until October 30, 2001. The
accompanying pro forma combining financial statements are presented with the
respective year ends of each entity and the six month period thereafter. The
difference in the year ends and periods presented do not have a material impact
on the accompanying unaudited pro forma combining financial statements.
In accordance with Article 11 of Regulation S-X under the Securities Act,
unaudited condensed pro forma combining balance sheets (the "pro forma combining
balance sheets") as of December 31, 2001 and June 30, 2001, and unaudited
condensed combining pro forma statements of operations (the "pro forma combining
statements of operations") for the six months ended December 31, 2001, and year
ended June 30, 2001 have been prepared to reflect, for accounting purposes, the
acquisition by Telemax Global Communications, Inc. (formerly Organik
Technologies, Inc.) of Telemax Global Communications, Inc.-Ontario and its
subsequently acquired wholly owned subsidiaries, Telemax Communications, Inc.
and Parsecom, Inc. For both the pro forma combining balance sheets and the pro
forma combining statements of operations, the number of common shares gives
effect to the exchange ratio of 9.23 shares of Telemax Global Communications,
Inc. (formerly Organik Technologies, Inc.) for one share of Telemax Global
Communication, Inc.-Ontario as if the reorganization had taken place at the
beginning of the periods presented.
PF-1.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION (continued)
The accompanying pro forma combining financial statements have been prepared
based upon the historical financial statements of the entities. The pro forma
combining financial statements should be read in conjunction with the historical
financial statements and related notes thereto of each entity as of December 31,
2001 and June 30, 2001, and for the years and periods then ended (January 31,
2002 and July 31, 2001 for Telemax Global Communications, Inc. (formerly Organik
Technologies, Inc.), along with the schedules reconciling the Canadian entities
from Canadian currency and Canadian Generally Accepted Accounting Principals to
US currency and US Generally Accepted Accounting Principles, all included
elsewhere in this Form 8-K/A and/or in previous periodic filings with the US
Securities and Exchange Commission.
The pro forma combining financial statements assume that the reorganization
involving all of the companies had been completed for the periods presented. The
only intercompany activity between the entities during the periods presented
consisted of advances from Telemax Communications, Inc. to Telemax Global
Communications, Inc. (formerly Organik Technologies, Inc.) and have been
eliminated in the presentation of the pro forma combining financial statements.
During the period January 1, 2002 through January 31, 2002, Telemax
Communications, Inc. advanced a total of $35,055 to Telemax Global
Communications, Inc. (formerly Organik Technologies, Inc.). These additional
advances have not been eliminated in the accompanying proforma combining
financial statements at December 31, 2001.
The pro forma combining financial statements are provided for illustrative
purposes only, and are not necessarily indicative of the operating results or
financial position that would have occurred if the reorganization had been
consummated at the beginning of the periods or on the dates indicated, nor are
they necessarily indicative of any future operating results or financial
position of the combined entities. The pro forma combining financial statements
do not include any adjustments related to any restructuring charges or one-time
charges which may result from the reorganization or the final result of
valuations of inventories, property, plant and equipment, intangible assets,
debt, and other obligations.
PF-2.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
(In US Dollars)
Telemax Telemax
Global Global
Telemax Parsecom Comm., Inc. Comm., Inc. Dec 31, 2001 Dec 31, 2001
Comm., Inc. Inc. Dec 31 (Organik) Combined Pro Forma Pro Forma
Dec 31, 2001 Dec 31, 2001 2001 Jan 31, 2002 Historical Adjustments Combined
----------- ----------- --------- ------------ ------------ ------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 41,727 $ 34,833 $ -- $ -- 76,560 $ -- $ 76,560
Short-term investments -- -- -- -- -- -- --
Accounts receivable 1,393,531 501,402 -- -- 1,894,933 -- 1,894,933
Inventory 244,959 -- -- -- 244,959 -- 244,959
Deposits and prepaid expenses 9,417 3,883 -- -- 13,300 -- 13,300
Advances to related parties 19,212 -- -- -- 19,212(1) (19,212) --
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Current Assets 1,708,846 540,118 -- -- 2,248,964 (19,212) 2,229,752
----------- ----------- --------- ------------ ------------ ------------ -----------
Fixed Assets, net 484,754 213,647 -- -- 698,401 -- 698,401
Other Assets:
Long-term investments -- 264,636 -- -- 264,636 -- 264,636
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Other Assets -- 264,636 -- -- 264,636 -- 264,636
----------- ----------- --------- ------------ ------------ ------------ -----------
TOTAL ASSETS $ 2,193,600 $ 1,018,401 $ -- $ -- $ 3,212,001 $ (19,212) $ 3,192,789
=========== =========== ========= ============ ============ ============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Bank loans payable $ 128,705 $ -- $ -- $ -- $ 128,705 $ -- $ 128,705
Accounts payable 1,312,722 224,281 -- 57,552 1,594,555 -- 1,594,555
Accrued liabilities 55,153 47,955 -- -- 103,108 -- 103,108
Deferred revenue 291,522 -- -- -- 291,522 -- 291,522
Payable - related party -- -- -- 54,267 54,267(1) 19,212 35,055
Current portion of
capital lease obligations 31,463 -- -- -- 31,463 -- 31,463
Current portion of loans payable 52,323 -- -- -- 52,323 -- 52,323
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Current Liabilities 1,871,888 272,236 -- 111,819 2,255,943 19,212 2,236,731
----------- ----------- --------- ------------ ------------ ------------ -----------
Long-Term Liabilities
Long-term portion of
capital lease obligations 27,825 -- -- -- 27,825 -- 27,825
Long-term portion of loans payable 74,200 -- -- -- 74,200 -- 74,200
Long-term directors' loans 986,701 -- -- -- 986,701 -- 986,701
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Long-Term Liabilities 1,088,726 -- -- -- 1,088,726 -- 1,088,726
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Liabilities 2,960,614 272,236 -- 111,819 3,344,669 19,212 3,325,457
----------- ----------- --------- ------------ ------------ ------------ -----------
Stockholders' Equity:
Common stock (A) 169,534 532,978 629 17,253,647 17,956,788(2) (17,365,466) 591,322
Preferred stock -- -- -- -- -- -- --
Subscriptions receivable -- -- (628) -- (628) -- (628)
Accumulated other
comprehensive income (loss) 74,112 (26,917) (1) -- 47,194 -- 47,194
Accumulated deficit prior
to development stage -- -- -- (16,367,929) (16,367,929)(2) 16,367,929 --
Retained earnings (deficit) (1,010,660) 240,104 -- (997,537) (1,768,093)(2) 997,537 (770,556)
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Stockholders' Equity (767,014) 746,165 -- (111,819) (132,668) -- (132,668)
----------- ----------- --------- ------------ ------------ ------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 2,193,600 $ 1,018,401 $ -- $ -- $ 3,212,001 $ 19,212 $ 3,192,789
=========== =========== ========= ============ ============ ============ ===========
(A) 50,000,000 authorized, no par value, 10,229,397 issued and outstanding (pro forma)
PF-3.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
December 31, 2001
(In US Dollars)
Elimination Adjustments-
(1) To eliminate advances made from Telemax Communications, Inc.
to Telemax Global Communications, Inc. (formerly Organik Technologies, Inc.)
Payable-Related Party Telemax Global Communications, Inc.
(formerly Organik Technologies, Inc.) $ 19,212
Advances to Related Parties Telemax Communications, Inc. $ (19,212)
(2) To eliminate accumulated deficits of Telemax Communications, Inc.
(formerly Organik Technologies, Inc.) and the common stock of
Telemax Communications, Inc., Parsecom, Inc. and Telemax
Global Communications, Inc.-Ontario
Common stock Telemax Communications, Inc. $ 169,534
Common stock Parsecom, Inc. $ 532,978
Common stock Telemax Global Communications, Inc.-Ontario $ 629
Accumulated deficit prior Telemax Global Communications, Inc.
to development stage (formerly Organik Technologies, Inc.) $ (16,367,929)
Accumulated deficit Telemax Global Communications, Inc.
(formerly Organik Technologies, Inc.) $ (997,537)
Common stock Telemax Global Communications, Inc.
(formerly Organik Technologies, Inc.) $ 16,662,325
PF-4.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
(In US Dollars)
Telemax Telemax
Global Global
Telemax Parsecom Comm., Inc. Comm., Inc. Dec 31, 2001 Dec 31, 2001
Comm., Inc. Inc. Dec 31 (Organik) Combined Pro Forma Pro Forma
Dec 31, 2001 Dec 31, 2001 2001 Jan 31, 2002 Historical Adjustments Combined
----------- ----------- --------- ------------ ------------ ------------ -----------
Sales $ 5,663,787 $ 1,057,952 $ -- $ -- $ 6,721,739 $ -- $ 6,721,739
Cost of sales 4,563,527 666,991 -- -- 5,230,518 -- 5,230,518
----------- ----------- --------- ------------ ------------ ------------ -----------
Gross Profit 1,100,260 390,961 -- -- 1,491,221 -- 1,491,221
Expenses-
General and administrative 466,506 103,612 -- 321,667 891,785 -- 891,785
Selling and marketing 243,649 27,581 -- -- 271,230 -- 271,230
Research and development 27,460 -- -- -- 27,460 -- 27,460
Depreciation 58,666 15,293 -- -- 73,959 -- 73,959
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Expenses 796,281 146,486 -- 321,667 1,264,434 -- 1,264,434
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Operating Income (Loss) 303,979 244,475 -- (321,667) 226,787 -- 226,787
Other Income (Expense)-
Other income 69,590 -- -- -- 69,590 -- 69,590
Interest and bank charges (27,818) -- -- -- (27,818) -- (27,818)
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Other Income (Expense) 41,772 -- -- -- 41,772 -- 41,772
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) Before Income Taxes
and Extraordinary Item 345,751 244,475 -- (321,667) 268,559 -- 268,559
Income taxes -- -- -- -- -- -- --
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) Before
Extraordinary Item 345,751 244,475 -- (321,667) 268,559 -- 268,559
Extraordinary Gain -- -- -- 22,531 22,531 -- 22,531
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) 345,751 244,475 -- (299,136) 291,090 -- 291,090
Preferred Stock Dividend -- -- -- (5,750) (5,750) -- (5,750)
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) Attributable
to Shareholders 345,751 244,475 -- (304,886) 285,340 -- 285,340
Other Comprehensive Income (Loss)
Foreign currency translation (8,228) -- -- -- (8,228) -- (8,228)
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Comprehensive Income (Loss) $ 337,523 $ 244,475 $ -- $ (304,886) $ 277,112 $ -- $ 277,112
=========== =========== ========= ============ ============ ============ ===========
Basic Income (Loss) Per Share
Net operating income (loss) $ 0.01
Extraordinary gain --
Preferred stock dividend --
-----------
Basic Income (Loss) Per Share $ 0.01
===========
Weighted average shares outstanding 19,537,455
===========
PF-5.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
(In US Dollars)
Telemax Telemax
Global Global
Telemax Parsecom Comm., Inc. Comm., Inc. Jun 30, 2001 Jun 30, 2001
Comm., Inc. Inc. Jun 30 (Organik) Combined Pro Forma Pro Forma
Jun 30, 2001 Jun 31, 2000 2001 Jul 31, 2002 Historical Adjustments Combined
----------- ----------- --------- ------------ ------------ ------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 50,971 $ 9,431 $ -- $ 60,402 $ -- $ 60,402
Short-term investments 297,225 -- -- 297,225 -- 297,225
Accounts receivable 798,510 35,374 -- 833,884 -- 833,884
Inventory 16,248 -- -- 16,248 -- 16,248
Deposits and prepaid expenses 214,614 -- -- 214,614 -- 214,614
Advances to related parties -- -- -- -- -- --
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Current Assets 1,377,568 44,805 -- 1,422,373 -- 1,422,373
----------- ----------- --------- ------------ ------------ ------------ -----------
Fixed Assets, net 125,342 269,514 -- 394,856 -- 394,856
Other Assets:
Long-term investments -- 245,970 -- 245,970 -- 245,970
----------- ----------- --------- ------------ ------------ ------------ -----------
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Other Assets -- 245,970 -- 245,970 -- 245,970
----------- ----------- --------- ------------ ------------ ------------ -----------
TOTAL ASSETS $ 1,502,910 $ 560,289 $ -- $ 2,063,199 $ -- $ 2,063,199
=========== =========== ========= ============ ============ ============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Bank loans payable $ 297,225 $ -- $ -- $ 297,225 $ -- $ 297,225
Accounts payable 1,051,830 2,997 87,583 1,142,410 -- 1,142,410
Accrued liabilities 4,953 25,705 60,375 91,033 -- 91,033
Deferred revenue 125,821 -- -- 125,821 -- 125,821
Current portion of capital lease
obligations 12,268 -- -- 12,268 -- 12,268
Current portion of loans payable 68,795 -- -- 68,795 -- 68,795
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Current Liabilities 1,560,892 28,702 147,958 1,737,552 -- 1,737,552
----------- ----------- --------- ------------ ------------ ------------ -----------
Long-Term Liabilities
Long-term portion of capital
lease obligations 16,711 -- -- 16,711 -- 16,711
Long-term portion of loans payable 110,092 -- -- 110,092 -- 110,092
Long-term directors' loans 971,996 -- -- 971,996 -- 971,996
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Long-Term Liabilities 1,098,799 -- -- 1,098,799 -- 1,098,799
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Liabilities 2,659,691 28,702 147,958 2,836,351 -- 2,836,351
----------- ----------- --------- ------------ ------------ ------------ -----------
Stockholders' Equity:
Preferred stock -- -- 100,318 100,318 -- 100,318
Common stock (A) 2,646,409 532,978 16,812,304 19,991,691 (1)(19,537,455) 454,236
Subscriptions receivable (2,476,875) -- -- (2,476,875)(1) 2,476,875 --
Accumulated other comprehensive
income (loss) 21,868 2,980 0 24,848 -- 24,848
Accumulated deficit prior to
development stage -- -- (16,367,929) (16,367,929)(1) 16,367,929 --
Retained deficit (1,348,183) (4,371) (692,651) (2,045,205)(1) 692,651 (1,352,554)
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Stockholders' Equity (1,156,781) 531,587 (147,958) (773,152) -- (773,152)
----------- ----------- --------- ------------ ------------ ------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 1,502,910 $ 560,289 $ -- $ 2,063,199 $ -- $ 2,063,199
=========== =========== ========= ============ ============ ============ ===========
(A) 50,000,000 authorized, no par value, 9,715,897 issued and outstanding (pro forma)
PF-6.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
June 30, 2001
(In US Dollars)
Elimination Adjustments-
(1) To eliminate accumulated deficits of Telemax Communications, Inc.
(formerly Organik Technologies, Inc.) and the common stock of
Telemax Communications, Inc., Parsecom, Inc. and Telemax
Global Communications, Inc.-Ontario
Common stock Telemax Communications, Inc. $ 2,646,409
Subscriptions receivable Telemax Communications, Inc. $ (2,476,875)
Common stock Parsecom, Inc. $ 532,978
Accumulated deficit prior to Telemax Global Communications, Inc.
development stage (formerly Organik Technologies, Inc.) $ (16,367,929)
Accumulated deficit Telemax Global Communications, Inc.
(formerly Organik Technologies, Inc.) $ (692,651)
Common stock Telemax Global Communications, Inc.
(formerly Organik Technologies, Inc.) $ 16,358,068
PF-7.
TELEMAX GLOBAL COMMUNICATIONS, INC. (formerly Organik, Inc.)
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
(In US Dollars)
Telemax Telemax
Global Global
Telemax Parsecom Comm., Inc. Comm., Inc. Jun 30, 2001 Jun 30, 2001
Comm., Inc. Inc. Jun 30 (Organik) Combined Pro Forma Pro Forma
Jun 30, 2001 Jun 31, 2000 2001 Jul 31, 2002 Historical Adjustments Combined
----------- ----------- --------- ------------ ------------ ------------ -----------
Sales $ 7,999,202 $ 25,119 $ $ -- $ 8,024,321 $ -- $ 8,024,321
Cost of sales 7,118,875 2,987 -- 7,121,862 -- 7,121,862
----------- ----------- --------- ------------ ------------ ------------ -----------
Gross Profit 880,327 22,132 -- 902,459 -- 902,459
----------- ----------- --------- ------------ ------------ ------------ -----------
Expenses-
General and administrative 827,158 28,489 4,630 860,277 -- 860,277
Selling and marketing 312,090 -- -- 312,090 -- 312,090
Research and development 136,151 -- -- 136,151 -- 136,151
Depreciation 38,298 14,963 -- 53,261 -- 53,261
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Expenses 1,313,697 43,452 4,630 1,361,779 -- 1,361,779
----------- ----------- --------- ------------ ------------ ------------ -----------
Net operating income (loss) (433,370) (21,320) (4,630) (459,320) -- (459,320)
Other Income (Expense)-
Other income 1,259 16,962 -- 18,221 -- 18,221
Interest and bank charges (51,045) (13) -- (51,058) -- (51,058)
----------- ----------- --------- ------------ ------------ ------------ -----------
Total Other Income (Expense) (49,786) 16,949 -- (32,837) -- (32,837)
----------- ----------- --------- ------------ ------------ ------------ -----------
Net income (loss) before income taxes
and extraordinary item (483,156) (4,371) (4,630) (492,157) -- (492,157)
Income taxes -- -- -- -- -- --
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) Before
Extraordinary Item (483,156) (4,371) (4,630) (492,157) -- (492,157)
Extraordinary Gain -- -- 341,399 341,399 -- 341,399
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) (483,156) (4,371) 336,769 (150,758) -- (150,758)
Preferred Stock Dividend -- -- (11,500) (11,500) -- (11,500)
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Income (Loss) Attributable
to Shareholders (483,156) (4,371) 325,269 (162,258) -- (162,258)
Other Comprehensive Income (Loss)
Foreign currency translation (2,927) -- -- (2,927) -- (2,927)
----------- ----------- --------- ------------ ------------ ------------ -----------
Net Comprehensive Income (Loss) $ (486,083) $ (4,371) $ $ 325,269 $ (165,185) $ -- $ (165,185)
=========== =========== ========= ============ ============ ============ ===========
Basic Income (Loss) Per Share
Net operating income (loss) $ (0.03)
Extraordinary gain 0.02
Preferred stock dividends --
------------
Income (Loss) Per Share $ (0.01)
============
Weighted average shares outstanding 19,537,455
============
PF-8.